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maec-2020

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2017

AZZ

AZZ #Thanks, <UNK>. Good morning, and welcome to our fourth quarter earnings call. Although fiscal year 2017 was a challenging year for both from operating segments and marked the 30th consecutive year of profitable operations. We are proud of this record of consistent profitability and strong cash generation. Over PEI enclosure systems and Alpha Galvanizing acquisitions performed outstandingly well during the year. We completed the realignment of the U.S. Galvanizing side so that they could attain our normal Galvanizing segment margins. As promised, our new plant in Reno became profitable in Q4 meeting our internal plans. But results in Q4 were disappointing. As we faced continued contraction in our markets due to the economic fallout of low oil patch activity, lower solar opportunities and a continued low level of major refinery turnarounds. While our Galvanizing segment focused on protecting their margins and maintaining price levels as zinc costs escalated, we may have given up some market share resulting in lower revenue than anticipated. Westinghouse is a fair sized customer for our medium-voltage bus and NLI businesses. So their announcement a few weeks ago that they were declaring bankruptcy helped us understand to delay some of our injury ---+ Energy businesses we're experiencing on jobs and change orders during Q4. This resulted in our Energy segment, which is normally very good at forecasting their quarterly performance, significantly missing their forecast in Q4. Also, as expected, our oil patch related businesses in tubing and hazardous-duty lighting continued to experience weak volumes due to low rig activity. The fourth quarter is seldom a strong one for WSI due to the winter period not being conducive to major turnarounds and outages. After starting off fiscal year 2017 with a strong first quarter, we struggled the remainder of the year to gain traction in the several of our businesses. While much of the shortfall can be attributed to market headwinds or customer issues beyond our control, we have to acknowledge we probably took on too many major new initiatives without having the critical resources in place to ensure the expected timetable for returns was realized. While we have great leaders in AZZ, even significantly improved our functional capabilities, our tendency to keep our corporate staff lean may be hampering our ability to drive the number of major initiatives we have taken on. The corrective actions we have already initiated based on the issues we faced in Q3 and Q4 are as follows: we have expanded the Energy marketing role to include Galvanizing and immediately focused on revamping our market activity indicators and forecasting process corporate-wide; we've implemented a formal key initiative review process to ensure these activities get the same focus as the day-to-day operations, but we also reduced the number of initiatives to those that are mission critical to our growth and profitability in fiscal year 2018; we brought in some outside help to drive operational improvement across the businesses with greater accountability and effectiveness; we also brought in some outside help to improve our major procurement of capital deployment processes; we've built key human resources leadership roles to improve talent development, build a better leadership edge and improve our performance management processes. We've modified our short-term incentive programs to better align payouts with operating income and cash flow results. We've increased emphasis on both bolt-on acquisitions as well as larger scale businesses that fit our operating model. We've been working on most of these things for the past few months and are already seeing traction in most areas. We have great people and very dedicated and experienced leaders within AZZ to implement and execute these strategic initiatives. I am committed to ensuring that happens as early this year as possible. We're already well into our first quarter of fiscal year 2018, and are still working through the impact of the Westinghouse bankruptcy filing. While we are beginning to see more activity in the Galvanizing arena, we are still not seeing much improvement in refinery turnaround activity this season. We had a very good first quarter last year and will struggle to top that performance this year. For the balance of fiscal year 2018, we feel good about most of our business and believe we will have solid impact from our major initiatives particularly on the operational improvement side. We've adjusted our guidance for fiscal 2018, primarily due to the potential impact on our medium-voltage bus and NLI businesses from the Westinghouse bankruptcy. We are revising our fiscal 2018 EPS range to $2.60 to $3.10 per diluted share, from $2.85 to $3.15 per diluted share and our sales to $880 million to $950 million from previously issued $900 million to $970 million. We still see most of the topside opportunity that brought the low end of the range down to be prudent. And with that, I'll turn it over to <UNK>. Thanks, Tom. For the fiscal year 2017, we reported net sales of $858.9 million, a decrease of $44.3 million or 4.9% compared to the prior year. Net income for fiscal 2017 was $60.9 million, a decrease of $15.9 million or 20.7% compared to the prior year. Reported diluted EPS decreased 21.3% to $2.33, which included the effects of an $8 million realignment charge taken during the year. Our backlog finished at $346.4 million, up 3.6% versus last year. Gross margins fell to 23.8% from 25.5% year-over-year, while SG&A as a percentage of sales grew slightly to 12.4% from 11.9% year-over-year, driving an operating margin of 11.5% compared to 13.5% in fiscal 2016. Our effective tax rate increased from 26.4% in fiscal '16 to 28.1% for fiscal 2017, as some of our Finite opportunities from prior periods have lapsed and we posted a 22.6% decline in cash flow from operations year-over-year, down $32.4 million to $111.2 million. As for our full year segment results, fiscal 2017 revenues in our Energy segment were down 3.5% to $483.4 million compared to the prior year. While operating income decreased 11% to $52.0 million compared to the prior year. In our Galvanizing Services Segment, full year revenues decreased 6.7% to $375.5 million compared to the prior year, while operating income decreased 16.6% to $79 million, which included almost all of the realignment charges taken through the year compared to the prior year. Looking at fourth quarter fiscal 2017 performance, on a consolidated basis, we reported revenues of $193.8 million, net income $11.6 million and reported diluted EPS of $0.44 as compared to $217.6 million in revenues, $16.1 million in net income and reported diluted EPS of $0.62 as the same quarter last year. A fourth quarter book-to-bill ratio of 1 yielded a backlog that grew to $346.4 million. We expect to ship 36.8% of that backlog outside of the U.S. As for our segments in the fourth quarter, revenue for the Energy Segment decreased to $112.1 million as compared to $117 million in the same quarter last year, a decrease of 4.2%. Operating income for the Energy Segment decreased 23.8% to $9.6 million compared to $12.7 million in the same period last year. Operating margins for the fourth quarter were 8.6% for the quarter as compared to 10.8% in the prior-year period. Revenues for the Galvanizing Segment for the fourth quarter were $81.6 million compared to the $100.6 million in the same period last year, a decrease of 18.8%. Operating income for the Galvanizing segment was $18.4 million as compared to $23.1 million in the prior year period, a decrease of 20.5%. Operating margins for the fourth quarter were 22.5%, off slightly compared to the 22.9% in the same period last year. We continue to believe that our ability to generate cash and our strong balance sheet are two of our core strengths. And coupled with the access to liquidity under a new banking agreement, we can support growing our operating platform. During fiscal 2017, we used our cash to purchase power electronics as well as invest in organic growth initiatives. We paid down debt in the amount of just under $55 million, increased the quarterly dividend to $0.17 per share for our shareholders and began to repurchase shares starting with $5.3 million during the year. For fiscal 2018, we expect to continue to focus on driving returns on capital, cost control and cash generation, and we expect to achieve an effective tax rate closer to 31% for the year. Although, there may be variances between quarters. With that, I'll turn it back to Tom for concluding remarks. Tom. Thank you, <UNK>. To summarize, I believe, we have the capability within AZZ to perform better as we execute on our strategic initiatives, positioning us as a leader in infrastructure protection. We have been focused on a lot of great things in terms of organization development, training, improving our talented and bench and positioning for growth. We've streamlined our activities but still have several great initiatives underway. And with the key ---+ most of the key resources now in place, we are committed to driving them faster and more effectively to generate significant top and bottom line growth in fiscal year 2018. While fiscal year 2017 was a challenging year primarily due to the weak market conditions, we believe we have taken the steps necessary to address the shortfall, so we'll see the positive impact in 2018. We had anticipated a better turnaround activity level in the spring season but it's still somewhat muted although, we are getting a lot of quoting activity for the fall and increasing international opportunities. The markets for Galvanizing have strengthened already but we believe we should have a much stronger second half of fiscal year 2018 versus fiscal year 2017. We're finally seeing significantly higher levels of petrochemical activity moving forward, and also fall season turnaround inquiries have increased. Several of our mission critical initiatives should also be generating both revenue and margin improvement as the year progresses. While the industrial manufacturing mood is better, we are still not seeing that translate to higher investment spend, and we remain unsure what the federal government might do with infrastructure investment. More importantly, we are not just hoping for improved markets but are actively focusing on margin improvement and accelerated M&A activities. We anticipate closing a couple of bolt-on deals in Q1 and have a very solid pipeline of small- to medium-sized deals on the near-term horizon. Thank you, and now we'll open it up for questions. Yes, I think I can give some color on that. We had ---+ couple of things. We couldn't recognize some service revenue because we were still working on change orders and struggling to get those through. <UNK> can probably quantify how much that was but it was several million dollars of revenue. And then we also had shipments waiting on the dock, where we just couldn't get approval to ship. And I could sense some of our business unit's frustration with that because they had it in their forecast and you have stuff ready to go and you can't get it to approved to ship. So that was in the fourth quarter. As we look forward, we have 2 areas that I'm concerned about. <UNK> will probably elaborate. One, we had booked to ship for Westinghouse in our plans when we had given the previous guidance, and then secondly, we are concerned about some of the receivables we have hanging out there that depending on how the bankruptcy goes and where we end up in the queue for some of these things, what's collectible and what we might have to write off. So those are my areas of concern. Pretty good. <UNK>, I'll elaborate with a couple of things. One, at the end of the fiscal year and therefore during the fourth quarter, it was actually a pretty small amount of accounts receivable out there. It was ---+ we wouldn't even be talking about if that was all there if there was. So we're talking about a mix of small amount of AR, plus the stuff that we did not invoice, so we're carrying some whip or some finished goods on that as Tom said on the one side. And going forward, he's exactly right. It would be more of ---+ there's little bit of uncertainty as to what exactly is going to happen when all the filing on this, what exactly is going to be collectible or not. And they do have good financing so anything that we ship going forward and get going with now is probably going to be pretty solid in terms of credit. What we're interested in is what happens to these projects in the long-term and we'll all have to watch the press for that. But so far, there seems to be some positive things being said, that's about it. Yes, we've merged that under our ---+ with Westinghouse, I mean, sorry, WSI. Got Westinghouse on the mind. But with WSI under that leadership team, which does a couple of things for us: One, WSI has ---+ because they're so seasonal, they've got a strong functional back office groups of finance and HR and legal and that can not be leveraged to support NLI. And secondly, they're working aggressively to integrate their nuclear sales organizations because WSI does have that nuclear welding overlay portion of their business and a sales force that addresses that. And then particularly, on the international side, there is really strong opportunities as we bring those two teams together. The Vice President of that business has already been very actively working on those integration activities and we've seen to benefit of that. Our focus in NLI's going to be maintaining a solid level of business but really looking to manage it for profitability. And it is. It's got good profitability, we think it could be better. It's not going to be a growth business for us given the dynamics in the nuclear sector right now. But it's ---+ gives us the opportunity to kind of leverage the overhead structure at WSI and NLI as we put those together and operate them pretty much in tandem. So that's our plan as it stands right now. It's effectively done. They've been working on it since February. So it's together, they're having a kickoff sales meeting. They've done a lot of work on the sales already but they're have a kickoff meeting, I think, next week. But the operational and back-office integration's complete and we see a lot of WSI folks over here in Fort Worth at NLI now. So we know that's an ongoing exercise. We're going to run it for a nice $50 million business and it'll be a nice business unit for us. We think we've got upside on the profitability piece given leverage. And so it's embedded in our plans and it's running very safely. We've got a good management team and it's only risk right now is what's what happens with its Westinghouse businesses. They're both in their backlog as well as they were looking to expand their alliance with Westinghouse as we went forward this year. What's changed is we just didn't see some of the ---+ we still have a lot of ---+ we have a lot of emergent work in the fall season, but it didn't ---+ most of us just didn't turn into bigger jobs as we used to ---+ as we're used to seeing. So as we ---+ we're into the spring season, we're seeing activity, but it continues to be mostly smaller projects, and they're not ---+ we're not seeing the normal opportunities to really get ---+ turn these from $0.5 million jobs into $5 million jobs. So the refineries tend to be still kind of patchy. And ---+ but we're seeing bigger opportunities as we now look into the fall. And also, we have not seen, other than some jobs in Mexico, we haven't seen some of the bigger jobs we normally have seen historically in India and Southeast Asia. And we are seeing some activity in China, and we're seeing things pick up in India as well and we're finally seeing some activity in Brazil. But all of those are kind of longer gestation cycles type projects. So we just don't see them breaking into spring. So that's kind of what's changed. We're seeing the activity, but it's not breaking as fast and it's not propagating into larger jobs the way we're used to. My first question, I wanted to focus a little bit on Galvanizing. Can you give us a flavor for sort of price and volume in the quarter, how they played out even directionally. Just try to give us a sense of the interplay there. And how you're thinking about book price and volume as we move into fiscal '18. And if you could give us a sense of sort of what you're expecting in terms of growth for the segment as well as how to think about margins. That would be helpful. Yes, I'll answer ---+ I'll give you an overview but Tim <UNK> is sitting here. I'll let him answer in more detail. Our focus is still and we've remained committed to try to sustain that segment at 25% operating margins and that's what the team's been doing. As I noted, I think we gave up some volume as we did that and also as we saw our zinc cost escalating through the quarter and we were adjusting prices upwards to account for that, which is why we did sustain fairly decent margins but not at the 25%. As we're now into this year, we're seeing our normal margins, and we're seeing some volume as well. So ---+ we're going to try to ---+ we're monitoring that very closely. We've got some good tools in place that's helping us do that. But I'll let Tim give you the deeper perspective. Thanks, <UNK>. When you look at pricing, we've been pushing pricing up in relationship to the increase in zinc cost. Competition has been reluctant to move in that direction and which has challenged some of our Volume. Volume. The other thing is when we look ---+ we are seeing a balancing of volume uptick. March was ahead of what the previous 6, 7 months worth. So we finally we feel like we've hit the bottom there and then bouncing back up. And we also expect solid growth going into ---+ solid results going into fourth quarter ---+ third, fourth quarter. And then we do had Galvanizings where we're transitioning to call it a the Metal Coatings. And the reason for that is they do have their continuous galvanized rebar plant opening up. It's in fine tuning and test right now. They've got their first coal located powder coating facility opened up in Crowley, shortly. So we got a lot of good growth initiatives going on there that they're going to start to see the benefit of those. While they are a little delayed in the ---+ we see those paying off this year. And then from a regional perspective, would you say that Gulf Coast is still probably most competitive or how you're thinking about just the trends that you're seeing throughout the country. Yes, the Gulf Coast, Texas, Louisiana, Oklahoma, the oil patch-related areas with the economy. It's interesting because here in North Texas, we're doing pretty well. Lots of construction, still business is moving in so you've got the construction activity, you've got a normal industrial activity. But as you go into South Texas and along the Gulf and Louisiana and then up in Oklahoma, that's where we're really impacted. In the west, we're impacted by a reduction in solar business but we're picking up some other stuff. And so I mentioned, Reno is now starting to percolate long and so we see some opportunities there but. And we don't anticipate solar's going to come back anywhere close to what it used to be. So that will ---+ but we are finding other business. But in Texas, Oklahoma, Louisiana, that's just the big chunk of the economy. Okay. And then you mentioned that you think you may have been a little bit lean on in terms of some of the management structure. Can you give us some thoughts on how to think about that moving forward and how to think about SG&A given maybe adding in some cost there but also pulling back a bit on some of these initiatives. Yes, I think, couple of things. We're talking about a handful of people and most of those are already in place or they're in places on a consult ---+ full-time consulting arrangement. Tim and his group has added an operational improvement executive to both run engineering but also drive on these initiatives and drive operational excellence even more than they have. Every one of the groups has resources in place. But some of that's fairly recent within the last few months. So you've already seen some of the run rate expenses going through in, but it's not huge. You should still ---+ we're going to keep ---+ we're going to stay lean, we're going to be smart about how we do it. But ---+ and we're putting more emphasis on how we manage ---+ in getting realistic about when these things are going to generate either revenue or income. So I think part of it is realism, part of it was or something we just needed ---+ they're longer term, obviously, the digitized galvanized system. We stop at 3 plants in and we're being very measured about what are the benefits and then what would be the timetable for rolling that out across [ 41 ] whereas we were just kind of rolling along on it. But that's just one example of how we've adjusted the priorities and taken a breath to make sure we're able to generate the benefits that anticipated. So it's not going to ---+ you're not going to see our SG&A spike up very much at all, if any. Yes, for me, it's 2 things and Tim may want to add some more color to it. But One, we are seeing some of these larger projects, petrochemical things and we're seeing those starting to queue up. And of course, we get involved in those later cycles. So as those are queuing up, we just anticipate when we're going to see fabrications to galvanize and steel to galvanize based on that cycle. And then secondly, we ---+ there's a couple of things: One, we are going to get a couple of these acquisitions that have been lagging done and we have Reno up to full tilt. With these 2 new Metal Coatings type plants are going to be at full bore. And so we would view ---+ I view it that we'll absolutely see improved activity even if ---+ or improved revenue, even if we don't see a tremendously more robust infrastructure investment. So ---+ but we are seeing some of these large projects, which do 2 things: One, whether we win the project or somebody else does, it sucks up some of that Galvanizing capacity in the market which is good for ---+ usually good for us and also good for pricing. No. We're opening up the rebar plant this month, in Catoosa. And ---+ but we are going to take a couple of months or so to evaluate what ---+ one, to get it fine tuned. Two, to get it loaded and make sure that we're generating the kind of capacity out of it that we expect. And it's a first of a kind in the U.S. and so we want to make sure that ---+ there will be some equipment adjustments and things like that. So we're delaying then doing the second or third plants until we have a deeper understanding of what the investment is, what the equipment needs to look like and is this doing what we expected it to do. And are the customers ---+ we built it, so are the customers going to come, so that's it. We're just ---+ it's maybe a quarter of delay from teeing up another one and that's assuming everything goes forward as we anticipate. I think you should probably expect it for '18 to be about where it was for '17. Yes, maybe even a little bit lower. Sure. In the short-term, we're looking on the Galvanizing side. And in this both fits with a couple of Galvanizing plants, maybe another type of Metal Coating that would fit. Not huge, typical bolt on the size of like we did last year in Alpha Galvanizing, it's under $10 million and just bolted on, integrated and drive it to the margins that we like to generate. In the pipeline now, we do have a couple of electrical, traditional electrical deals that fits with our portfolio, nothing exotic and then we've got some more Galvanizing type deals. Fits with our legacy portfolio. I was hoping if you could just comment on more of your Electrical products business so what you're seeing in tubing and lighting, duct side and enclosures. Sure. I think in tubing and lighting we believe do that there are things that have bottomed. They're doing a little better as we come into the new fiscal year. We're seeing their backlogs improve, their quoting activities improving. We cut about as much of cost out of them as we could. So any improvement goes through pretty quickly now. And they are seeing more activity and in part of that they're focused on more customers and they're chasing some other types of businesses. So we feel good, we feel like we've bottomed in ---+ it's brighter future for us. On the enclosure side, enclosure has been okay. We've ---+ I think had a really good years I mentioned PEI have been in enclosure business fit right in and they had an excellent year. In addition to our traditional enclosure business in Pittsburg, Kansas. The inquiry activity is a little lighter than we probably like it at this point. We have decent backlog to work with and we want to make sure we ---+ but we're trying to maintain our focus on value pricing and not give up margin. So I won't say we're super challenged on filling that backlog but we are keenly aware that the market's not real robust on enclosures right now. But we've got some activity and we've got decent backlog through the first part of the year then we've got to fill in the back half. So we've got some time to do that and we see some opportunities out there. And in our switchgear business is doing very well. So as well as our high-voltage bus business has a really strong backlog, a lot of that is the international opportunities, some of which we've announced. So we're feeling pretty good about that. And then medium-voltage bus, it's just a question of what happens with some of this nuclear stuff that they have backlog on and what they need to recognize some revenue on. All right. Thank you very much. Once again, we feel very good about where the company is and where we're going. We've got a lot of great things going on. And while we struggled through the fourth quarter, we feel good about fiscal year 2018, we're kind of glad to get 2017 behind us. And we're very focused on growing the business, maintaining the profit margins that folks are used to. And getting more acquisitions done that fit within our traditional legacy portfolios. So that's our commitment. We look forward to the next call and giving you all an update at the end of the first quarter.

2017_AZZ

2018

PFS

PFS #Thank you, Rochelle. Good morning, ladies and gentlemen. Thank you for joining us today. The presenters for our first quarter earnings call are Chris <UNK>, Chairman, President and CEO and Tom <UNK>, Executive Vice President and Chief Financial Officer. Before beginning their review of all the financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer can be found in this morning's earnings release, which has been posted to the Investor Relations page on our website, provident. bank. Now I am pleased to introduce Chris <UNK> who will offer his perspective on our first quarter. Chris. Thanks, Lenny, and good morning, everybody. Provident's quarter results were strong, as we had an improving margin and solid core earnings while asset quality declined slightly during the quarter. Earnings per share were $0.43, up from $0.37 for the same period in 2017, on improved revenue and a larger average loan portfolio from strong originations during the fourth quarter of 2017, which was partially offset by increased interest costs on deposits and borrowings. Performance metrics continued to improve with annualized return on average assets of 1.16%, and return on average tangible equity of 12.7%. The margin improved by 5 basis points in the quarter to 3.30% as funding costs lag asset repricing. As for growth, the level of payoffs in our loan portfolio offset new closing volumes during the quarter, which continued to exceed prior year levels. We see credit and loan structures by some competitors continue to be covenant light and aggressive on terms and pricing, while we continue to maintain our discipline in book on those loans that meet our criteria, the pipeline remains robust and the yield exceeds the portfolio average. Deposit growth during the quarter was muted, as competition has raised rates at an accelerated pace. We successfully deployed the strategy to raise some CD rates below current borrowing levels. Core deposits represent 90.2% of total deposits at March 31, 2018. Noninterest income increased 6.8% compared to the same period in 2017, due primarily to commercial loan prepayment fee income, increased wealth management income and a small increase in retail deposit fee income. Noninterest expense was controlled, as we continue to prepare for $10 billion. Operating expense at average assets was 1.95%, and our efficiency ratio was 54.18%. And we continue to invest in new technologies to build out our digital product offerings and planned offers (inaudible) late in the second quarter, along with improvements in our bill-pay service. Asset quality experienced a blip in the quarter, as we downgraded a couple of C&I credits that were experiencing deterioration. Overall charge-offs amounted to 17 basis points for the quarter. Consistency on our underwriting is paramount and maintaining our disciplined asset pricing, duration and structure is extremely important. The overall economic environment is positive with the tailwinds of tax reform and increasing interest rates. On loan pricing, we remain focused on shorter duration and variable rate loans, and we still anticipate low- to mid-single-digit loan growth for 2018. From an interest rate risk management perspective, we remain well balanced and are prepared for gradual rise in interest rates. Deposit payments have been relatively consistent, and well below the levels we have modeled. The Senate's proposed legislation that would provide some regulatory relief is now with the House where it is languishing amongst the parties in vitriol in Washington, we're very hopeful that will change. Also, we continue to seek more clarification from New Jersey's Governor regarding his stance on creating a state bank. I'll turn over to Tom now who will provide more detail on our quarter. Tom. Thank you, Chris, and good morning, everyone. As Chris noted, net income was a record $27.9 million for the first quarter of 2018 or $0.43 per share compared with $19.5 million or $0.30 per share for the trailing quarter. Average earning assets grew by $156 million, with average loans increasing $168 million or an annualized 9.4% on the strength of trailing quarter originations. On a spot basis, loans decreased $35 million despite relatively strong originations, as payoffs were somewhat elevated and lighter credit activity resulted in net outflows. Our net interest margin increased 5 basis points as the yield on earning assets increased 11 basis points. The increase in average balance and margin drove a record quarterly revenue of $87 million, and record net interest income of $73 million. Average deposits grew by $53 million, or 3.1% annualized. Funding cost did increase this quarter, as selected commercial and municipal accounts repriced and the spread between borrowing costs and time deposits made CD funding more attractive. As a result, we brought in over $50 million in a promotional 13-month CD, at 1.75%, below the Federal Home Loan Bank overnight borrowing rate of 2% at the end of the quarter. Looking ahead, the loan pipeline increased to $1.3 billion, and the pipeline rate has increased 16 basis points since last quarter to 4.65%, exceeding the loan portfolio rate of 4.18%. Based on our strong loan pipeline, 90% core and noninterest-bearing deposit funding and the variable-rate nature of many of our assets, we anticipate a strengthened economy and additional fed rate increases will contribute to further expansion of our net interest margin throughout 2018. While our overall credit metrics remain favorable, we did see some deterioration in selected commercial credits this quarter, resulting in 17 basis points of net charge-offs to average loans, and a $5.4 million provision for loan losses, an increase from $1.9 million in the prior quarter. The increase in the provision for loan losses and net ---+ and loan charge-offs for the first quarter of 2018 was largely due to a $15.4 million credit to a commercial borrower that on March 27, 2018 filed a Chapter 7 petition in bankruptcy for liquidation of assets. The specific reserve of $2.5 million was established for this impaired loan, which is subject to ongoing review. The allowance for loan losses to total loans increased 86 basis from 82 basis points at December 31. Non-interest income was consistent with the trailing quarter at $13 million, while non-interest expenses remained well controlled on an annualized 1.95% of average assets, contributing to a 54% efficiency ratio for the quarter. Expenses decreased by $1.2 million to $46.9 million versus the trailing quarter, primarily as a result of reduced consulting stock compensation, NPA related and advertising expenses, partially offset by increased occupancy and data processing costs. First quarter results reflected the benefit of a lower corporate tax rate, while trailing quarter results reflected $4 million in additional tax expense related to the enactment of the 2017 Tax Cuts and Jobs Act. As a result, our effective tax rate decreased to 19% for the first quarter from 45% in the trailing quarter. We are currently projecting an effective tax rate of approximately 20% for the full year 2018. That concludes our prepared remarks. We'd be happy to respond to questions. $2.3 billion, Mark. Sure. The total portfolio growth or growth initiatives that includes enhanced stress testing, some additional compliance adds, some data analytics work and some seasonal preparation. The total for the year is about $4.6 million that's included in the budget. We did about $480,000 in the first quarter of that, looking at about $1.4 million in the second quarter. So Q2, I'm looking for expenses of about $48 million to $48.5 million. The reason for the increase in the current quarter would be in addition to some step-up in these investment spends or the portion of our directors' compensation that's paid in the form of stock is done annually in the second quarter of each year, that's about $900,000. So I'm looking for full year expenses around $195 million. So we're still running at $2.8 million on the Durbin. As far as the crossing, a lot depends on payoff activity. I was expecting higher floatings at the end of the period this quarter. Payoff activity was a little bit stronger than we expected. The plan is to go full speed ahead unless we wind up very close at the end of the period, in which case we will manage under to save the extra year on Durbin. I'll call it building materials importing wholesaling the building materials. It seems to be very borrower-specific events this quarter, and I think I would say is indicative of a broader trend of deterioration. I guess some of the volatility you would expect when you move to an 80% commercial loan kind of mix. But, Mark, this is Chris. Industry specific, it's not like okay, there was a whole host of these type of issues. It's just an aberration of one business. Yes. Right now, that's ---+ this particular credit is the biggest challenge we see, which is why we highlighted that there may be some additional provisioning required given the late-breaking nature of the deterioration. There is an ongoing review of the realizability of the collateral on that loan. Other than that, things are pretty steady as she goes. We're at 86 basis points on total loans. I don't see us dramatically increasing that rate. It's about 136% of non-accruing loans. We're comfortable at those levels. I appreciate the comments around expenses and $10 billion you mentioned in your prepared remarks, the potential for regulatory relief, obviously keeping an eye on that. If it goes through as proposed, is there ---+ how would you quantify the benefit to you guys from a P&L perspective. I think, this is Chris. First and foremost, would be the DFAST no longer applicable, but we would certainly redo risk assessment, and we certainly look at our stress testing individually, but not prescribe to those enhanced potential standards. So that would be helpful that we would not have to hire additional quantitative analysis staffing to counter that in Washington. I think we guestimate that to be a savings, Tom will reaffirm it around $1 million may be just slightly under. I can say I think about $1 million to $1.5 million even over what we were projecting for a run-rate, which was $6 million to $7 million inclusive of Durbin. Got it . Okay. That's really helpful. And then I heard you loud and clear on wanting to just run full steam ahead on the loan growth side of things, encouraging to see the pipe up from the rate and volume perspective. If you just give us a little bit of color, in terms of what you would expect to pull through from a loan mix and perhaps geographic perspective. Well from a loan mix, it's all sectors, I would think residential lending, it's New Jersey, there is not as many houses so that is a little tougher business to predict, as there are a lot of other institutions that are trying to gather volume there. We're seeing our opportunities in all facets. The challenges is to pull through, where we used to maybe pull through 65% to 70% on some of these loans. And once we put them into a term sheet, those numbers have been lowered down to 40% to 45% at best. So there's a lot of people trying. They're very competitive, a lot of aggressive deals at levels that we don't think are prudent for us, they may be for others. So I don't think there is any category ---+ we kind of lightened up on multifamily for a period of time. We don't use the broker community for that. There is certain select borrowers that we will still work with for certain project. Projects here are transit villages and the like. I think we just ---+ we look at those that are very bankable, that's what we tried to do on all asset classes. Tom, if you have any color. I think I would add further that the competition in some of the credit standards appear to be relaxing further amongst some of our peers. And I ---+ we're trying to holster a credit discipline here, which might limit our growth relative to some of the peers to a degree. Fortunately, we're seeing favorable re-pricing, we have a good short-duration book of a lot of variable-rate assets. So we're foregoing in volume, we're making up in rate currently. Well, I certainly know that our customers ---+ we have a couple of new ones in the first quarter in the commercial real estate space, which is good to have a few new ones versus those that are still very well established with us. In construction and industrial, everybody is trying to get it. I think the fact the clients that we are able to meet, they know that we can close ease without a lot of issues. The ones that we're missing out on are more the longer-term fixed-rate ones that some people are going aggressively out there at 10-year and 15-year fixed in the C&I space, which we won't go down that path. I think that ---+ as you say, we do have, maybe, the right people in the right time. We never wanted overstate our importance. Somebody could probably underprice us or undercut us, but there may be one deal only. It was underwritten at the end of '16, it was put on the books right in January of '17, viable business, everything was fine credit-wise. Something took the turn to the worst that you wouldn't expect. No. No, it's the borrower that's challenged in their business. I wouldn't say we're overextending because the asset book is relatively short. So we're just trying to manage our interest rate risk. So we're able to stay moderate on, I guess, on the funding length. Prepayment fees were $616,000 versus $185,000 in the trailing quarter. We are seeing more payoffs as people are aggressive, a lot of capital out there trying to be deployed aggressively. So we're getting more payoffs, I know, in the first quarter. We saw insurance companies coming back in to fill their bucket with some longer term or permanent loans that we normally don't get anyway from a construction to (inaudible). And we're still seeing some payoff activity, and I think we always try to save as much as possible. You don't want to lose the loans. But if there is a level that we can't compete or doesn't hit our ROE hurdle that's reasonable and you kind of have to let it go. We see some of our borrowers reducing debt as well and taking it ---+ putting in additional equity to reduce their debt. We have March and Sept ---+ June and September. Well, in Pennsylvania, when we acquired Team Capital, we definitely got in and there was an enhancement to the opportunities there in the way of 25 basis points. We're making more headway there, we have hired a few new players in that market. But we're seeing, again rationality and some aggressiveness in some of the smaller companies that are just, I guess, trying to put on assets at levels again, don't make sense to us. I would contrast the opportunity certainly in the Lehigh Valley. They are there, we gave a look, we're getting more looks of late, which is encouraging. And down into the Bucks space in PA, that team has done a pretty good job. And we just want to always maintain our focus where our growth can be in the Bucks area. There is a lot of building going on with a lot of warehouse stuff going on even on a spec basis, which is a little scary sometimes. So we think the PA has opportunities versus New Jersey. We've always known New Jersey market fairly well. So are we optimistic about our Pennsylvania expansion opportunities. We will see if we can pull them through at the right levels. Yes, one or the other. Not to be glib but it, we don't ever preclude. We just always look at the numbers that they make sense in the ---+ the partnership with somebody would be ---+ going to be beneficial to both institutions and the people and the customers. That's what we love the opportunity. I know in Pennsylvania, there is a bit more smaller institutions that are doing great work and have great market share that we'd love to have conversations with. That's probably the way that the growth would be preferable versus just de novo and/or just hiring a couple of lending officers. So we are always actively listening and talking to people on the ---+ and if there's an opportunity, we'd love to be part of it. Nothing materially, you would expect after tax reform in the first quarter, everybody is kind of just hunkering down and seeing what that brings. I think there's always the market rationale, it has to come in where people are expecting huge premiums, and no longer really I think available. No. I really couldn't give you any potential impact at this point. Too early for us to give you any reliable estimate. No. Nothing, obviously that we're able to point to at all. I think it's just ---+ people have conversations. On the other hand, I think there's nothing that would have changed from quarter-to-quarter.

2018_PFS

2015

POL

POL #I mean overall FX was just a little bit below 3%. If you look at what I'd sort of pull together as the total impact of Spartech and/or lower or ongoing integration with all the Spartech businesses that's probably 6.5% to 7% and then raw material impacts another 3%. So all those are going in the negative direction. That leaves you with about a percent, let's say, which is really the Accella acquisition plus flat from an organic standpoint beyond that. Well, I mean if you went back in time, <UNK>, to some of the comments that we made in 2014 about our distribution performance we really didn't feel like we had as much discipline as we should around the rigor with which we actually processed the transactions, incorporated pricing, etc. So I feel like we're doing a better job overall in that respect. But to some extent this is also the impact of just what happens in a quickly decelerating sales price environment where to some extent you can see higher margins as a result of just lower selling prices. So that's an element of this, too, that I'd say plays out in the second quarter. For the most part and pretty much across the board our suppliers set the price in this particular industry and we're trying to just manage the on-hand inventory quantities that we have the best that we can. Well I would remind everybody that we do have seasonality in this and really all of our businesses. Our second quarter is typically the strongest, so my expectation is that margins do come down some in Q3 and Q4 for distribution but that's driven more by probably seasonality more than anything else. Our long-term vision for POD is 6.5% to 7.5% as we outlined at our Investor Day in May. Are you talking about for the balance of the year. Look, I think typically what you'll see is that in the second half of the year margins do come down and that's a result of seasonality and that's across all our businesses, not just POD. There could be some benefit as I might have been mentioning with <UNK> on an earlier comment just related to consumer and EM having a little bit better Q3. But on balance I just always tell people generally speaking you should expect that Q3 is below Q2 from a margin standpoint. Well I'm cautiously optimistic. Even despite all the challenging headlines and everything that I said I do believe that there seems to be some early signs of improvement. Just seems like every time we see a good sign there's something else that comes up that takes the headline. So it's really mix at this point. I think we're finding a way to win ourselves with our own new business and improving profitability and that's really how we been able to grow there. So I still have sort of mixed observations on Europe at this point. We've got time for one more call. Can I comment on did you say second-half sales growth. Yes, what you've seen obviously in the first half this year is that sales have been below 2014. The main drivers of that have been the weak euro, lower hydrocarbon base raws primarily impacting PP&S and POD and then also the year-over-year sort of integration impact from Spartech. So my sense is those carry through through the balance of this year. There's a chance that we could see growth in Q4 but we will see organic revenue growth in the first quarter of 2016. Well, thanks everybody for joining us on the call today. As always we appreciate your interest in PolyOne and look forward to speaking with you at the end of next quarter if not before. Take care.

2015_POL

2017

LQDT

LQDT #Thank you, <UNK>. Good evening, and welcome to our Q4 earnings call. I'll review our Q4 performance and provide an update on key strategic initiatives and today's developments regarding our DoD Surplus Contract recompete. Next, Mike <UNK> will provide more details on the quarter and full year results. Finally, <UNK> <UNK> will provide our outlook for the current quarter. Although our Q4 and fiscal '17 consolidated results were mixed, we are pleased with the performance of our state and local government marketplace, our GovDeals segment and our retail supply chain marketplace, our RSCG segment. Our GovDeals marketplace reported year-over-year GMV growth of 15.8% in Q4 and 17.5% in fiscal '17. We signed over 300 new agency sellers during Q4, including the state of Ohio; city of Boston; Orange County, Florida; and Lake County, Illinois. And we continue to expand the geographic reach of this marketplace throughout the United States. During Q4, GovDeals completed over 54,000 auctions for client agencies ranging from vehicles, heavy equipment, helicopters and airplanes. Our RSCG segment continued to grow the top line organically, with GMV up 18.4% year-over-year in Q4 and up 11% year-over-year in full year fiscal '17. Of note, we have increased adoption of our consignment model with many clients, which results in lower capital requirements and higher margins on GAAP revenues. Our Liquidation.com marketplace saw strong performance and buyer participation, GMV per completed transaction and overall site conversion. Our RSCG team continues to expand our Returns Management offering to solve the needs of both retailers and manufacturers. We're developing new capabilities to expand our work in the processing, handling, refurbishing and sale of product returns, which is well suited to the rapid growth of online retailing, which is fueling higher product returns industry-wide. We'd expanded our sales team and recently signed new multiyear Returns Management service contracts with both retailers and manufacturers. Our sales pipeline remains strong, and we expect the business to grow organically during fiscal year '18. Our Capital Assets Group, or CAG, segment business reported ---+ or realized unexpected headwinds in Q4 due to seller project delays across all verticals as well as in our energy vertical due to Hurricane Harvey. Our DoD Surplus and Scrap Contracts results continue to be hampered by lower volumes and declining value of assets received compared to historical trends, which continues to drive down margins. While we saw less client sales activity among industrial accounts in our CAG segment during Q4, overall trends in our sales pipeline remain strong and we expect the business to improve sequentially from Q4. Our strategy in fiscal year '18 and beyond remain focused on the long-term growth of our commercial and municipal government marketplaces on a global scale while capturing operating efficiencies as we complete the integration of our marketplace platform and business functions under our LiquidityOne transformation program. We expect strong organic GMV growth in our commercial and municipal government marketplaces in fiscal '18 and continue to be encouraged by the expansion of our customer base and service offerings. Overall, during fiscal year '17, we signed approximately 3,000 new commercial and government sellers and added approximately 185,000 new registered buyers to our marketplaces, pushing total registered buyers to nearly 3.2 million. Our growth initiatives are focused on building density and our target verticals by expanding relationships with leading sellers, buyers and partners; expanding our flexible service offerings, including our full service, self-service and retail Returns Management offering; and enhancing our buyer experience through our LiquidityOne e-commerce platform. To support our future vision, we are completing the build-out of new infrastructure and capabilities to support our sellers and buyers. We are also simplify and streamlining our organization to drive efficiencies, which should improve earnings results in fiscal year '18. During Q4, we consolidated leadership in the sales, marketing, operations and executive teams across the U.S. and Europe within our CAG segment. Streamlining of our technology, human resources and corporate support functions has expanded into Q1 '18, and it's consistent with our goal of driving increased productivity throughout our organization to benefit our sellers, buyers and shareholders as we advance our vision of building the world's leading marketplace for surplus assets. During Q4, we continued to advance our LiquidityOne transformation initiative. We are excited by the early product-related benefits of our new e-commerce platform, which went live this past summer within our energy marketplace. The new LiquidityOne back-end system enables a real-time view of transaction activity and trends within the marketplace. We have begun to experience benefits from system improvements, such as being able to quickly adapt marketing and operations activities to match current seller and buyer demand and improve lotting activity to drive maximum value for sellers. The mobile-responsive design of our new platform enables users to seamlessly access account information, allows our sellers to upload assets for sale, and enables buyers to search, bid and pay for assets on any device type. When this functionality is implemented across our entire network of marketplaces, the combined impact will create a distinct and powerful advantage that allows our customers more choice in how they transact with us and drives a more efficient business as we strengthen our processes, service offerings and overall value to our sellers and buyers. The next phase on our transformation process is the launch of our new commercial self-service marketplace, AuctionDeals.com. This will support the expansion of our self-service model to small and middle market commercial companies in addition to our traditional focus on large fortune 1000 organizations. Additionally, our new AuctionDeals marketplace mirrors the technology of our GovDeals marketplace, and its launch will support a logical transition of GovDeals onto our new LiquidityOne platform during the second half of fiscal year '18. The remaining CAG marketplaces are expected to launch on our new platform this summer, and our RSCG marketplace will launch by early fiscal year '19. Following the migration of our marketplaces onto our new e-commerce platform, we anticipate an overall increase in productivity across our sales, marketing and operations areas as well as increased participation from our sellers and buyers driven by our enhanced services. Lastly, we anticipate launching a new consolidated marketplace by early fiscal '19, which will serve as a single marketplace to search, find and buy any asset from all of our sellers. The power of a single, unified marketplace will drive increased traffic from our buyer base through more efficient marketing strategies and will provide our buyers with a more efficient method of sourcing our global supply of available assets from the most recognizable sellers across the globe. We exited Q4 in a strong financial position to pursue our growth initiatives with $94 million in cash and 0 debt. Next, I would like to update you on our DoD Surplus usable non-rolling stock contract, which represented approximately 10% of our GMV in Q4. Today, the Defense Logistics Agency conducted a sealed bid for the non-rolling stock property stream that we currently operate under a 1-year extension through December 14, 2017. The new usable Surplus Contracts were bid today in 2 separate regions. The new contracts required bidders to submit a fixed bid as a percentage of the original cost of the property. We were outbid in both regions, and our expectation is that the DoD non-rolling stock usable property stream will transition to new contracts. The bids we submitted for both regions were approximately 40% higher than our current pricing levels. The apparent high bidder elected to bid an amount that was approximately 80% higher than our current pricing levels. Liquidity Services' long-standing philosophy is to focus on opportunities that leverage our strengths to provide value to our clients and deliver attractive returns on our effort and investment. Given that the new terms of the usable contract are far more onerous than our current contract, bidding any higher by Liquidity Services would have been damaging to shareholders. As we have previously noted, the new contract imposed ---+ imposes higher cost and risk than under the current contract. For example, under the new contract, there is no termination for convenience option for the contractor, rendering it a take-or-pay contract, which means the contractor is obligated to pay the fixed bid rate for up to 6 years regardless of any changes in the volume or mix of property referred by the DoD. Even small changes in the property volume or mix could result in significant operating losses under the contract terms. Moreover, the requirements of the new contract result in higher operating cost versus the status quo, including a requirement to pay for all property every 30 days independent of sales volumes, a 72-hour asset removal requirement from DoD facilities at the contractor's cost, significant pallet storage charges for failure to timely remove property, shipping costs to move the property to the contractor's warehouse, secure warehousing requirements, reduced credits per shipment discrepancies, and a lower guaranteed property stream. Failure to identify and remove restricted property from the contractor's sales channel also results in contractor penalties equal to 50% of the item's original cost. We are proud of our award-winning work and relationship with the Defense Logistics Agency for the past 17 years, supporting the sales of usable surplus property to hundreds of thousands of small businesses, and we look forward to continuing to provide services to the DoD under our Scrap Contract and in other areas of mutual interest. Since the inception of our work with the DoD in 2001, Liquidity Services has significantly evolved. Today, there is limited strategic overlap of the DoD Surplus program with the rest of our business. Given the complexity and unique contract requirements of the DoD Surplus property program, there is limited overlap between buyers of the DoD Surplus property and the rest of our property, neither do we rely on the DoD contracts to attract and retain other municipal government agency clients or commercial clients. Moreover, we continue to add other federal government agency sellers to our business on mutually rewarding business terms. As we wind down the DoD Surplus Contract, we are looking forward to reducing the complexity and cost of our operations and focusing our efforts on continuing to grow our state and local government, commercial capital assets and retail supply chain segments. During fiscal year '18, we expect the benefit from growth in our GovDeals, CAG and RSCG segments due to anticipated higher sales activity and greater adoption of our existing and new value-added services. We also expect to see improvements in our energy and industrial verticals following realignment efforts within the CAG segment completed during Q4 and continued investments in sales and marketing, partially offset by the lingering effects of Hurricane Harvey. In closing, continued investments in our people, processes and platform will enhance the value we bring to clients and drive our transformation. As we begin to harvest the investments we are making over the next few years, we are excited about the tremendous potential to grow our business. Liquidity Services is committed to driving innovation and significant value creation for our customers and shareholders as we execute our long-term growth strategy. Now let me turn it over to Mike <UNK> for more details on Q4 and full year fiscal '17 results. Thank you, Mike. Good afternoon. Looking ahead to 2018, we will remain focused on growing our commercial and municipal government marketplace and completing the initial go-lives of our e-commerce platform onto our remaining marketplace, which, in turn, will position us to improve and expand service offerings for our sellers and buyer base. During 2018, our self-service capabilities are expected to expand at a more rapid pace beyond municipal government sellers as those commercial marketplaces for self-service go live. Overall, with our future consolidated marketplace, we will begin to also further facilitate and expand how our 3.2 million registered buyer base accesses our products that both we and our sellers sell on our platform across our industry vertical through self-service and full-service capability. Our ability to expand demand for products sold on our marketplaces is expected to improve results for us and for those selling on our platform. We expect our results in 2018 to reflect improvements across the commercial and municipal government businesses as we continue to benefit from: one, the continued growth in our retail and GovDeals segment and the return to top line growth for the commercial capital assets business; two, improvement in our commercial capital asset segment, energy and industrial verticals following realignment efforts in this fourth quarter; three, streamlining of our technology in corporate support functions to be more efficient; and four, our transition earlier in 2017, restructuring the TruckCenter business and the restructuring and realignment of our IronDirect business for the drop-ship model. The various restructuring and realignment efforts during 2017 are expected to generate an annualized benefit during 2018 of approximately $8 million to $10 million. 2017 also reflected the negative impact of $3 million in inventory reserves related to IronDirect that we would not anticipate in 2018. These benefits in 2018 are expected to be offset by the loss of DoD Surplus Contract. While we do not anticipate that the loss of the Surplus Contract will impact our expected Q1 outlook, we will provide details of the impact for the rest of the year during our first quarter earnings call in early February. While our first quarter top line guidance anticipates steady performance overall compared to our fourth quarter fiscal year 2017, we anticipate improvement in our commercial capital assets business coming off a weak fourth quarter while the municipal government and retail businesses come off a seasonally strong fourth quarter. We also continue to expect LiquidityOne-related expenses to be in the range of $2 million to $3 million per quarter during 2018. The first quarter outlook, year-over-year comparison reflects ongoing declines in the volume and quality of goods received under the DoD Surplus Contract and continued variability in our DoD Scrap Contract related to commodity pricing, volume of goods received, and product mix. In addition, underperformance from our commercial capital assets business is expected as a result of the lingering impact of Hurricane Harvey and uncertainty in the claiming of larger projects in our industrial vertical. The retail business and the seasonally low first quarter for GovDeals are, however, expected to continue to report year-over-year improvement. Management guidance for the first quarter 2018 is as follows: We expect GMV for Q1 of 2018 to range from $140 million to $160 million. A GAAP net loss is expected for Q1 2018 in the range of negative $11.5 million to negative $8.5 million with a corresponding GAAP loss per share for Q1 of 2018 ranging from negative $0.37 to a negative $0.27. We estimate non-GAAP adjusted EBITDA for Q1 of 2018 to range from a negative $8 million to a negative $5 million. And a non-GAAP adjusted loss per share is estimated for Q1 of 2018 in a range of negative $0.34 to negative $0.25. This guidance assumes that we have diluted weighted average shares outstanding for the quarter of approximately 31.5 million and an effective tax rate in the single digits. We will now take your questions. I'll give you a quick overview of the CAG business. The pipeline in the business is improving. We've had a number of engagements signed in the last few months. We've also seen an increasing amount of activity at year-end as people approach tax, selling and other sort of quarter-end catalyst for sales. I think one of the things that has driven that CAG business has been execution in a cross-border manner, where we can cap buyers and markets like China for sellers who have assets outside of that region. So I think, <UNK>, we're going to see sequential improvement in profitability in our commercial capital assets business. We've also noted that the energy supply chain is strengthening. We've seen some recovery in commodity prices there that had a favorable impact on asset pricing. We had a couple of nice pipe sales in the current quarter, expect that to continue into fiscal '18. The other thing I'd point out, our capital assets business has higher average value per transaction. It's a more efficient business. So as we move more volume, we have a lot of operating leverage in that business. From the very early days, the DoD business was always designed to be a profitable business. It's a very mature business. It's also a business that's very, very customized. It's a highly unique business. I would say the reporting requirements, the technology and regulatory requirements or property management requirements are all very unique and specific to the DoD. And the other side of the coin is that it's got a lot of complexity. And as we noted in 8-K not too long ago, the contract became increasingly complex as a variety of new systems were introduced by the DLA as property mix changed and it became more of a struggle for us. So while we wouldn't have carried a money-losing contract, it's clear that it became less favorable, all things equal, less favorable over time. And I think the company's focus and strategic intent, not only in fiscal '17 but for the last few years, has been to increase the diversification of the business and other promising areas. For example, we now have over 11,000 state and local government agency sellers on our platform. That includes other federal agencies, and those commercial terms are much more in line with our core commercial business and ones that we find quite attractive. And that's something you can continue to see growing in fiscal '18. Any time you wind down a contract, you have some opposing forces. We'll certainly have some revenue reset related to the top line. Remember that the DoD contract is a 100% purchase model. So 100% of the GMV flows to revenue, and it's more of a balance sheet call in terms of we were writing checks for inventory. Under the old contract, we had some amount of float. Under the new contract terms, that stipulates that the buyer pay every 30 days, which is one of the things we flagged when we bid the contract as not being as attractive. So we'll have some reset of revenue. We'll also probably have some release and generation of working capital. So we'll probably end up putting some cash back on the balance sheet as we wind this down over the 120-day wind-down period stipulated in the current contract. We'll be in a much better position in early February to give you sort of precise guidance on impact from revenue through the bottom line as we get this precise timing and intentions of the agency client on how they would like to wind it down. We think clients are really excited about the reporting capabilities, the self-service capabilities of the new platform. And I was with a client in the energy path not too long ago, and they were very eager to do a lot of their work on their own, accessing our data warehouse, being able to manipulate information and get more reporting. The great thing about our new product, <UNK>, is we're in an agile world now so we can take feedback and create value in a very short turnaround time. We're now doing nearly weekly releases on the new platform. So that type of cadence opens up a lot of opportunities to take client ideas, bounce them back and then prioritize and get those releases into production. So we're excited about the ability to use this as a data management platform, the ability to target and reach our buyers with use of that data, the ability to drive mobile use of our platform. And as we proceed with additional go-lives, we'll be in a position to aggregate more and more of our property in a single marketplace experience, which, as you know, drives that virtuous cycle. So fiscal '18 will probably be the most dramatic product release cycle for us that we've ever had. Yes. If you were to look at ---+ yes, if you were look at it today, we have a beta site that really hasn't been marketed or promoted. It's active. We have active sellers and buyers on the platform. It is not the product that will be available. As we turn the page on December and into early January, you will see the AuctionDeals platform go live in the January time frame. So that will reflect the functionality and features of our LiquidityOne platform and will supersede this beta site that we have that's been used to get feedback from sellers and buyers.

2017_LQDT

2017

CL

CL #Good morning. This is <UNK>. I thought before <UNK> jumped into his customary division review, I'll just make a couple of opening comments. Suffice to say, as we said in the press release, this, indeed, was another challenging quarter. And as I think we all know, the industry continues to face global market volatility, and we have seen a further slowdown in consumer demand in several key markets, most especially the U.S., Southeast Asia and South Pacific. On the positive side, that pressure was offset somewhat by strong organic growth in Latin America with a good balance between price and volume and a return-to-positive organic sales growth at Hill's. My purpose in making the introductory comments now is to give you a sense of where we are focused going forward. And going forward, we are focused, focused intensely, on returning our business to growth over the balance of the year and improving bottom line performance. And our focus is heightened and will be heightened on 4 fundamentals. The first is increased advertising spending behind more impactful creative; the second, innovation across our portfolio of businesses, particularly for Personal Care and Oral Care in the growing naturals segment and especially naturals for toothpaste, which has a particular target of local brands in some key geographies in Eurasia and Asia; third, greater investment behind our high-growth e-commerce business; and fourth, aggressively maximizing productivity up and down our income statement. Those are the 4 fundamentals we are focusing on for the balance of the year. And I will be back later with more detail on each and turn the call back now to <UNK> to go through the discussion of the quarter. <UNK>. Thanks, <UNK>. So let me come back to my introductory remarks and say that despite the recent category weaknesses we have seen, we believe a heightened focus on the 4 fundamentals I mentioned, in essence, our focus on brand building and productivity, will allow us to reaccelerate our top and bottom line growth. So let me talk a bit further about each of them in turn. The first was, you will remember, increased advertising spend behind more impactful creative. So we are, as you know from the beginning of this year, committed to more consistent advertising investment sustained across the year with an increase on both a dollar basis and as a percentage of sales. The year-over-year increase in advertising investment is planned to accelerate in the second half as we lap lower levels of spending in the prior year. Obviously, part of this advertising will be digital, which is a growing percentage of our working media spend. And when I talk about quality, we're talking about advertising that is tested to be motivating and persuasive with consumers using testing norms and what it sees is an increase in advertising behind what you might call the equity of the brand or the purpose of the brand advertising behind the base business sustained over time, while we use incremental advertising to launch new products. That's the most immediate investment effect. But what I wouldn't want to forget is our increasing investment in building per capita consumption of toothpaste, which, of course, drives sustainable, long-term growth, particularly for Latin America, Asia and Africa. Our Bright Smiles, Bright Futures program is well on its way to reaching 1.3 billion children and teach them how to brush their teeth by our target year of 2020. And as you may recall, spending behind this program generates returns that are 3x our return on traditional advertising. And our analysis has shown that in our top markets outside the United States, 70% of our addressable population brushes their teeth, on average, less than once a day. The point being, there is significant upside over time in consumption in Oral Care, and so we are investing sustainably to generate that consumption over time. So advertising for the near term and advertising for the longer term. Secondly, innovation. Innovation, of course, across our portfolio for the balance of the year and into 2018, but innovation particularly in the naturals space, which is a growing area of opportunity. And further than that, specific innovation in the naturals space for toothpaste, which is both an emerging segment and an effective counter, we believe, against local brands in Asia and Eurasia. Now on the naturals side, beyond Oral Care, <UNK> already spoke about progress with Tom's on UAP. And obviously, we broadened that Tom's range now into other Personal Care categories, like body cleansing and bar soap. On toothpaste, we have launched the Colgate Naturals toothpaste line in several markets across 3 of our divisions. And the rollout of that bundle will continue over the balance of the year, particularly across Asia. Our consumer innovation centers located in those geographies have allowed us to build bundles that are tailored to meet local needs and preferences. In other words, a counter to the local brands we find in those geographies and are encouraged by the initial results we see. Now on top of that, as I have mentioned previously, in terms of regional brands, we continue to see benefit from underlying growth on brands like elmex and meridol in toothpaste in Europe; Darlie in China; and Sanex in Europe. So that's the second, innovation across the portfolio particularly focused on naturals and especially focused on naturals for toothpaste. The third is working with retailer partners for growth on our business and specifically greater investment behind the high-growth e-commerce space. So given the changes that we are seeing in the retail landscape, we continue to aggressively adapt our go-to-market execution to service the very different brick-and-mortar retailers growing in our categories today and, of course, e-commerce. The focused nature of our portfolio and the industry-leading market shares that we have, make us relevant to the shoppers in the ---+ in those outlets and give us influence in our key categories, and we, of course, are working very closely with our retail partners to help them drive traffic to their stores across all of the different segments of brick-and-mortar retail. Very importantly, we continue to build our capabilities in e-commerce. And this, I think, is reflected in our leadership in toothpaste from an e-commerce point of view in our top markets: United States, China and the U.K. And for Hill's, as consumers increasingly move to online shopping, we have the ability to reach an entirely new group of consumers, and we make sure that our presence is structured to provide the information that pet owners need to make a smart decision about which Hill's product is right for their pets. Interestingly, year-to-date, Colgate's worldwide e-commerce business growth is up 65%, so an area of aggressive focus for the back half of the year. And finally, the fourth, aggressively maximizing productivity up and down the income statement. On the cost front, we are, of course, focused on realizing both short- and long-term productivity in order to drive sustainable margin expansion. Funding-the-growth that you know well continues, we believe, to be a best-in-class productivity program that we use to work down cost on all lines of the income statement. In 2017, funding-the-growth is delivering significant savings in areas like ocean freight, direct and indirect procurement, co-packing and fragrance and formula harmonization. We're also tackling long-term cost structure through our Global Growth and Efficiency Program. We'll continue to see benefits from our hubbing activity and our move to centralize Colgate Business Services and the back-office services that they, indeed, provide. And we have said consistently over the last 6 to 9 months that in this last year of our Global Growth and Efficiency Program, we are being particularly focused to capitalize on the opportunity it affords us. And so in the second quarter of this year, we initiated 2 additional projects as part of that program with the goal to better align our cost structure to longer-term trends: one addresses the structure of our European business; and one addresses our corporate infrastructure, both underway. And these additional projects take us to the upper end of our previously disclosed cost and savings ranges. And we continue to say that we remain very focused on identifying as many additional projects in the last year of this program. So those are the 4 areas of heightened focus: Increased advertising spending behind stronger creative; innovation across the portfolio, particularly in naturals and specially in naturals on toothpaste against local brands; sharp focus with our retail partners and particular emphasis on the high-growth e-commerce marketplace; and continuing to aggressively maximizing productivity up and down our income statement with 2 new programs now public in this quarter just closed. So those are our areas of focus for the back half of the year. And now I'd be delighted to open the line to questions. Yes. Well, a lot in there, <UNK>. First, I think as we came into this year and we had the 2 quarters we have had, when we talked about the prior quarter, the first quarter, we clearly said we would be below that range. And now we are saying, based on the first half performance, that our growth this year will be low single digits. I would not offer comment at this stage on the 4% to 7% range. I think that's something that we would come back and revisit once we gain more practical experience of how this year unfolds. I will say there have been a lot of onetime or at least volatile episodes in the last couple of quarters, particularly late in the second quarter, which have been problematic. And it would be fair to say that the continuing slow consumer demand is worrisome, but there's nothing that we see in the data that suggests that consumer behavior is changing in any way. As <UNK> said, we have seen pockets of lengthened frequency of purchase, and we are addressing that both strategically with advertising and innovation and also some price point action on the shelf. The competitive environment is variable. It can be volatile, and it can be particularly sharp. And we saw that, for example, in June here in the United States across many categories, heightened competitive activity. So I think that's going to be a variable. And our belief, and I think the most important belief here, is that the consumer behavior will see the categories come back. The only thing we can practically do to address that in the short term is to drive our market shares because then, whatever the category growth is, we will be getting the best return out of the category growth that exists. And in that regard, I can say that our global year-to-date market shares are better or even with the first quarter shares on all of our priority businesses. So we are beginning to see our market shares rise. But I think before one takes a view on longer-term growth rates, one would want to see this year play out and get more information on that consumer behavior, get some practical evidence that, indeed, the consumption patents do return to the norm. And then when we give guidance for 2018, that would be the time to have the conversation. Yes. Well, all good questions. Suffice to say, the naturals segment is growing faster than the average growth of the category, which is what makes it attractive. We, of course, have participated in this segment for quite a while, particularly in markets where it's important, Asia or even go back to our now more than decade-ago acquisition of Tom's of Maine here in the United States that continues to grow very, very nicely. I guess, the point is that the offering we are talking about now is different from the naturals offerings that we have had thus far, much more tailored to brands that now exists that didn't exist when we had our naturals portfolio first in the marketplace competitive with those brands tailored from a flavor point of view, and to the point you made, adding meaningful premium price compared to prior offerings in the marketplace. So it's more of the tailoring of it than the existence of it because segments, obviously, morph over time. So I don't think it's a question of missed. I think it's a question of tailoring the product to the category as it evolves over time. And the question of cannibalization is a very difficult one to answer in the general. It varies market by market. Premiumization tends to reduce the cannibalization, obviously, with lower businesses. And we will, of course, be supporting our base businesses when we come with this premium innovation. So we'll be working very hard to keep the cannibalization to a minimum. But regardless, to the point you made from a cannibalization point of view, this will be accretive from a pricing point of view and, therefore, favorable. Thanks, <UNK>. Well, the e-commerce growth of 65% is, indeed, for Colgate in totality. In other words, it is the Hill's business, and it is all of the Colgate businesses. And frankly, we don't intend to break out the difference between the 2 nor do we intend to break out the percentage of our business that is e-commerce. Suffice to say, it is still relatively modest but very, very high growth. And once it reaches a tipping point, we'll certainly bring that information to the marketplace. The pricing reaction is actually not mutually exclusive. The ---+ when we talk about price point adjustment at retail, it is to be competitive on purchase cycles. And while it applies to all of our categories in promotional pricing, it is less focused on Oral Care, which, of course, is what Noel was talking about. So they're selective. They're surgical, and they are less focused on Oral Care, point number one. Point number two, from an Oral Care point of view, just the prior discussions on the naturals offering, we are also bringing innovation that is materially higher-priced to that business. And as Noel may have described, in some cases, as we have relaunched literally tiers of our business, T-I-E-R-S of our business in different parts of the world behind that relaunch, we found a way of elevating the value the consumer gets in the pricing of the line to increase the average life ---+ the average price of our entire portfolio. So I guess, that's the way to answer it. And yes, revenue management is extremely important. The topic that Noel talked about remains highly relevant. And what <UNK> was talking about was surgical activity, less applicable to Oral Care on promotional pricing, not strategic pricing. Yes. Interestingly, <UNK>, it kind of works the other way. What we observed on e-commerce thus far is that the consumer is actually tends to buy more premium. And even if they're not buying the premium brands, they tend to buy in multiples. So in fact, the e-commerce behavior is favorable to us from a consumption point of view. And if you look at the Hill's business, 50% of the Hill's business in the U.S. on e-commerce is subscription. So that means, once they buy it onetime, they're signing up to regular delivery of that diet over time, which is, we believe, a good business model for our brand. Yes. Well, thanks for the question. <UNK> is your name. I guess, she [broke off]. The gross profit, as <UNK> said in his remarks, was behind our expectations for the first half of this year largely because of raw material cost increases, which, in fact, was primarily in the area of fats and oils. Interestingly, the cost of fats and oils has ebbed since the first half of this year. So as <UNK> also said, we're now moving into a more favorable raw material cost environment and, of course, for this year thus far, and it gets easier against our projections over the balance of the year, there has been less transaction headwind because foreign exchange has not been so negative as it had been in previous years. So we are looking at what we believe will be a multiple benefit of material costs easing and transaction costs lessening. And as <UNK> also said, we, therefore, expect to see a sequential improvement in gross margin as the year unfolds. So I think that's the answer to the question. Yes, good question. And I'm glad you got the scale thing on the table. You're right, for the last couple of years, and I think we were quite expressive about this when we talked about 2017 faced with sharp foreign exchange negative impacts. And with having no immediate term place to go, we reduced advertising. And we said, coming into this year, we did not want to do that. And ---+ but even if foreign exchange were going to run sharply negative for whatever global calamity reason, that we would not go back on our advertising investment. And our intention at the time we said that, and it remains our intention and our plan, is to continue our advertising investment in the second half at approximately the same level, in other words, sustained advertising that we have seen so far across the first half. And yes, that will suggest a fairly meaningful step-up in advertising investment. We think the ROI will be good. This is now talking to the traditional advertising. Because, as I said earlier, we have a lot of advertising vehicles now developed that have tested extremely well. So we know the advertising works very, very hard and is persuasive to consumers. And interestingly, it is good to have this balance between announcing what's new, and shall we say, supporting and reminding of the reason consumers give trust to the brand in the first place. And so continuous advertising behind, as we call it, the base, is an important part of that decision. And you're right, obviously, the Bright Smiles, Bright Futures investment is not a short-term investment. But as again I tried to spell out, we know the ROI on that is terrific. We know we get good ROI on our media in general. And therefore, we're very comfortable with the investment decision. And of course, it is our expectation that this will be part of the reason to return us to growth as we work our way across the year. And again, Bright Smiles, Bright Future, we hope, will be part of the reason why we will be able to sustain that growth in the toothpaste category out over time. Broad question, <UNK>. Let me try and take it on. The U.S. dish reset, which I think we have well covered, we now have the products fully in distribution. They're on the shelf where we want them on the shelf. We were hit in June, as we've said, by heightened competitive activity, very heightened. And we are responding to adjust our promotional planning and offerings to jump start progress across the back half of the year. So yes, in our control and, I think, a plan in place to rebuild growth. On the decisions that affected customers, I guess, I would focus on the 3 you raised. You have our decision to move broadly to e-commerce in the United States with our Pet Nutrition business, which we continue to believe is absolutely the right decision, and we're an equal opportunity believer in that space. In other words, we are just as happy to lean in aggressively with a retailer who has a brick-and-mortar offering and an e-commerce offering as we are with a pure play e-commerce company. We had a hiccup, shall we say, with a customer in the U.S. That hiccup is now substantially behind us and a return to normal promotional and other consumer engagement activity is recommencing and will, of course, build across the balance of the year. The European retailer matter, I think, <UNK> covered well. We are seeing our market shares rebound quite nicely and growing sustainably and sequentially. And we expect to see that continue across the back half of the year. In Africa/Eurasia, we made those distributor choices that we again believe are the right choices for the business over the long term. And we will continue to lap those comparisons until the fourth quarter of this year. So the third quarter will still be burdened by a difficult comparison. And then of course, the reality is that even though each of them, we believe, was the right decision, they had a compounded effect all at the same time, which was problematic. But I think faced with the requirement to make the decisions again, we'd make the same decisions. The GST ---+ we were just digging out of the demonetization headwind, and then boom, you get the GST, which basically saw the stockists close up shop the last 2 weeks in June. And we're hopeful, barring another event, that we will see that rebuild across the back half of the year. So I think, on balance those issues, I think we have identified them before, and I think we are in the process of building them. The macro environment, looking forward, it really comes down to the categories. We think the behavior will come back, but we're focused on building our market shares, so that whatever the category growth rate is, we're getting, frankly, more than our fair share of that underlying growth. So that's the way we're thinking about that, while we get more consumer data in terms of behavior as we work our way through the balance of the year. Yes, I think that's a very relevant and pertinent point. And yes, of course, it is within our strategic remit. It's not, and I know you know this, but it's not as simple as simply taking a product and putting it through a proven distribution system. When you bring products that people may or may not be familiar with in their entirety, i. e. First question, <UNK>, if you won't mind, just a housekeeping one. In the past, you've been kind enough to supply category growth rates by region, U.S., Europe and E<UNK> So if we can get an update there. I think, probably, in aggregate, category growth rates have probably come in about 1 point since 3Q, but an update there would be helpful. And then the second question more broadly, <UNK>, would be around M&A. And you talked a lot about areas of focus for the balance of the year, which we well covered on this call. So I appreciate that. That's very clear. But the question is, I guess, given this sharp deceleration, which we haven't seen in your portfolio in a long, long time, does this give you any pause with respect to M&A, which has not been a big part of the company's portfolio strategy. Had some nice tuck-in deals, of course, with Sanex and Hill's. But said differently, in a slower growth environment, does this increase your appetite for M&A. And if so, would you consider pursuing any businesses outside of the current portfolio. Yes, the ---+ well, category growth, frankly, it's reasonably straightforward. Certainly, for the last quarter, the emerging markets are still mid single digits in some countries, with much more of a presence now in e-commerce. China would be the obvious example. And in the developed world, what we have seen is, Europe and United States or North America were essentially flat. I mean, that's the way the world splits today. M&A, do we have appetite. We've always had appetite. We're just, I would say, very strategic in our appetites. And when we look at M&A, we look at it from the point of view of strengthening the portfolio of the company, not meeting a sales requirement, and certainly, not jumping into a new business that we don't know too much about. And mustard would have been a very expensive one to get into, for example. So I think you could see us buy on the fringes of the businesses we're in. We have with Sanex, for example, lotions and creams that we are now expanding in Europe. But if we were to play in M&A, and we are very keen on expanding our portfolio with the right asset, I think you would see it in the broader definitions of the categories we're already in, in Oral Care, in Pet Nutrition and in Personal Care. And that's the way we think about it. We're not going to do anything in a undisciplined way just for a tactical response. We remain keen. Okay, <UNK>. Well, let me start with the Global Growth and Efficiency Program and the SG&A idea. I mean, you're right, we remain extremely focused on maximizing our opportunity in this final year of that program. And I think that is reflected in the 2 actions that we talk about in the second quarter, one of which reflected in the costs in our filing. Both of them are directly and meaningfully in the SG&A space. They will play out over time in terms of realizing the benefit, but they will afford a benefit and we continue to focus on finding other areas that we could do light without in any way damaging the firepower we need to be successful on the ground. So yes, it's a very clear area of focus, and I think it's evidenced in the actions that we took. It's very difficult to come back to this cadence on the quarter. Again, as <UNK> said, in the U.S., actually, the second quarter, in aggregate, was worse than the first quarter overall, with a combination of a weak April and then a June that traded. In terms of destocking, we have seen that on a volatile basis. I guess, the only thing I can repeat is that we are seeing on a year-to-date basis our global market shares in our priority categories better or flat with the first quarter, which gives us a sense that our underlying consumption-driven growth is improving, and we look forward with the 4 areas of focus I mentioned to capitalizing on that fully as we work our way through the back half of the year. Yes. The ---+ well, taking it in reverse order. In pet, we think about it more in terms of the formulation of our products. We are unabashedly a brand that provides clinic ---+ proven clinical benefits to pets, whether it's preventative or whether it's curative with our Prescription Diet business. And certainly, on the preventative health line, we have reformulated our products to put proteins first and not give people a reason to switch out of our business, and if they value a particular clinical benefit, to not have a barrier to them trying the Hill's product. And we think that has been quite successful and conceptually moving into a very, very almost Tom's-like naturals is difficult to do. We have tried a couple of times with Hill's. And the heritage of the brand doesn't give you the bandwidth to go pure on naturals. So we've done it by formulation to eliminate barriers. I don't think at this stage, given the compounding effect of the slowdown in our markets, trying to do the math on what is the one-off and how does it relate to the underlying category growth is going to be particularly helpful because the expectation is that the category growth will come back. So the reason the way we're thinking about it is to say, over the year, we expect this year now to be low single digits from an organic sales point of view. And we continue to be very focused on the consumer, on the consumer behavior. We've taken some actions that <UNK> mentioned to try and capture the frequency of purchase in some of our businesses. And as we learn more, we'll be able to respond more authoritatively is the behavior coming back or is there something else driving what we see in the categories. And we think it would be premature and probably misleading to get into that at this stage. So I have 2 questions. One question is, when we talk about those initiatives, <UNK>, that you laid out so eloquently around naturals, local competitors, e-commerce, more ad spend, better productivity or lower SG&A, these are all things you've heard many of us kind of collectively push for and push you on to the path on these conference calls. I guess, for a while, I mean, I remember 3 years ago about e-commerce were only local competitors. And all of us were kind of asking these questions. The ad spend has been an ongoing discussion. And now you're saying well we got to do something about these things. So I guess, my first question is, I'm just wondering why it took so long to react. What was the turning point. And now it just feels you're behind. So I guess, why it took so long. And then the second question ---+ I lay it aside if it's related or not, I guess. But there's a lot of buzz out there right now, a lot of discussion, and I think, your stock performance today, given the numbers, would suggest that ---+ there's a lot of discussion in the investor community that the numbers today are so bad, the numbers last quarter are so bad that they're actually good for shareholders. And activists will come in, an acquirer will come in and get involved. What do you think about that view. Certainly, it's helped your stock out recently. But what do you think about that view. And how hard will you work to specifically prevent a bid or an activist in that context. Yes. The ---+ I guess, on the first question, I'm not sure I completely agree. I think it's fair. The criticism on the advertising spend and the lack of consistency of advertising, but that we addressed coming into this year's budget. And I'm just reaffirming that it is playing out the way we expected it to play out. On e-commerce, we have been very focused on e-commerce for a long time. We may not have talked about it as eloquently as you find I did this morning, but we have been focused on it. And I think that's why we have the toothpaste leadership positions in the markets that we talk about and the growth rate and subscription levels on the Hill's business that we talk about, even if we took the pain of making those decisions in the marketplace, which we're now after almost 9 months, nearly 1 year, just working our way out of. Naturals, again, we have been talking about the naturals for a while. Yes, it's only coming to marketplace right now. But when the local brands idea came up, we were saying that, that is our response. You can chide us on the speed of getting it to marketplace. And I won't fight that, but in terms of the idea, and that was accounted to the local brands, we feel good about the offering that we're on. And on the efficiency, I'm not sure you were implying any critique of the productivity. And I think the action that we have taken in this quarter that we have mentioned was evidence of our focus in that area. So when we think about going forward, buzz is one thing, and there seems to be increasing buzz in this world about virtually everything, which can become an enormous distraction. So the only thing I can say, and I won't repeat the remarks I made at Bernstein, but I will say, we are focused on the areas that I have mentioned. We think these are the right areas to focus on to see a recovery in sales momentum across the back half of the year. We are focused on the SG&A line in our income statement to get us more productive from a reasonably advantaged base going forward, so we have no blinders in terms of a need to focus on our cost structure, and we will continue to do that. And if we have more to say in that space, we will say that in a way that we think is consistent with driving growth sustainably over time. And with or without buzz, we are steadfastly focused on that. So I'm sorry, I can't sound more energetic. It seems to fail me. But I think you can rest assured ---+ well, you don't have to rest assured. I guess, I'm saying that we very much are focused on growth and on cost structure. Yes, I think ---+ I don't think it's driven by e-commerce. I think it's driven by, shall we say, business entrepreneurs who are local. I think, pleasingly for us, it's driven by ideas that tend to be premium, which are ideas we're happy to compete with rather than, perhaps, in the early years, ideas that were more pricing driven. In some cases, it's driven by affinity. So the Yunnan Baiyao brand in China was already a well-established wound healing brand in the country. You take it into the toothpaste category and say, you stop bleeding gums, well-known brand in the toothpaste category, and they didn't do much advertising in the early years, and the business started to grow. Patanjali in India takes a very naturalist view of his business. So these are concepts in the local market. They tend to be premium-price oriented. And it means that you have to respond with a very specifically constructed offering that attacks the benefit the consumers are looking for. Hence, the naturals reaction. So I think it's more a function of entrepreneurs' concepts, affinity with the local market, which is why we have innovation centers and technology centers in China to be close to the consumer on the ground in that country. And in the end, the winner over time in these clashes are going to be the companies that best understand the consumer and serve them offerings that they want over time. And of course, that's what we are resourced and focused on doing. Well, let me start by saying, you start with a great name. So that's a good place to start. Our point on advertising was not to do with the advertising in the first half. Our point on advertising and the numbers you referred to in the recent historical past was to do with adjustments downward that we made in advertising in response to, unfortunately, foreign exchange very sharply going the other way that your second question was suggesting. And when we came into this year, what we said was, that isn't what we were going to do. Advertising north of 10% is a good level of advertising. And so what we said coming into this year is that we wanted to sustain our advertising across the full year, which means the comparison over the last couple of years is driven by a lower second half in those prior years and what will be a sustained level over the back half of the year, which means the advertising will be meaningfully up versus the prior year. So it's sustainability rather than a lack of in terms of investment. And hey, foreign exchange, you look at the last 5 years. I think the pundits have been wrong coming into basically every single year. And if foreign exchange does turn positive, we will have a quick round of applause, and then we will bring it back to the business. Our general historical rule of thumb has been to reinvest some and to bring some to the bottom line. What we would actually do this time around would be a subject of internal debate, but that rule of thumb has been our historical action. Yes, the gross profit roll forward. So prior year gross profit was 60.2%. As you know, we picked up 40 bps from pricing between the restructuring, which is de minimis and funding-the-growth, positive 170 bps. Material, negative 180 bps, which was primarily the fats and oils, as I said. All other, 20 bps. And that takes you to the 60.7%, which is up 50 basis points year-on-year. So that's the gross margin roll forward. I would say, in Latin America, it is a focus on the fundamentals. It is innovation. I wouldn't go so far as to say the lower-end innovation is making the difference. And I would say, markets like Brazil, I'm afraid, remain variable. So we're very pleased with that bounce back, but we'll be watching very closely in terms of sustainability through the third quarter. But the fundamentals are the same fundamentals for Latin America across the back half of the year. Okay, I understand that is the last call. So thank you for being with us, and we look forward to talking to you again in October.

2017_CL

2018

ASH

ASH #Thank you, <UNK>, and good morning, everyone. Ashland's financial results in the second quarter exceeded our expectations as sales and earnings growth in Specialty Ingredients drove strong results in the quarter. In fact, all 3 of our operating segments generated robust growth in sales and adjusted EBITD<UNK> Within Specialty Ingredients, the team continues to focus on driving organic and volume mix gains. Year-to-date, we have averaged over 3% in this critical area, excluding currency and acquisitions. Notably, these gains are increasingly driven by volume growth, which totaled 3% in the second quarter. As a result, Specialty Ingredients delivered 19% sales growth in the quarter, including 5% organic growth from strong volumes, improved product mix and continued pricing actions. All end markets improved with Pharma leading the way, delivering 17% sales growth year-over-year. This was driven largely by increased capacity from our asset utilization initiatives. In addition, we again saw a strong growth in the personal care segment with sales up 7% driven by continued gains in biofunctional ingredients. On the industrial side of the business, adhesive sales rose 7%, coating sales climbed 4% and construction and energy improved 8%. In addition, Pharmachem results improved sequentially as expected and made a strong contribution in the quarter. Together, this broad-based growth contributed to a 20% increase in adjusted EBITDA within Specialty Ingredients and a 40 basis point increase in adjusted EBITDA margin. At the same time, we reduced the price raw gap in Q2 with aggressive pricing actions. These actions are expected to help us achieve gross margin improvement year-over-year in the second half of our fiscal year. We are achieving our initial target of keeping company SG&A flat, excluding the impact of acquisitions and currency. In total, with rising organic revenues driven across flat spending, SG&A as a percentage of sales, declined 160 basis points compared to the prior year. Next, the Composites team continued to deliver strong sales and earnings growth from price discipline, volume mix improvements and contributions from the plant we acquired in France. Within Intermediate and Solvents, the team delivered an 18% increase in sales through strong pricing and favorable currency. As a result, in total, for the quarter, Ashland increased its sales by 21%, grew adjusted EBITDA by 30% and adjusted EBITDA margins by 130 basis points and delivered adjusted EPS of $1.06, which is well above our previous guidance of $0.80 to $0.90 per share. In summary, the Ashland team is generating broad-based sales and earnings momentum as we enter the second half of the fiscal year with all 3 of our operating segments on track to meet or exceed the original financial targets for the year. As a result, we have increased our outlook for the year and now expect adjusted earnings per share growth of 35% to 45% for fiscal year 2018, which is well above the 15% outlined at our Investor Day last year and above our initial forecast at the beginning of this year. This momentum is being driven by specific actions to sustain and grow Ashland's premium mix such as through new market strategies and successful product introductions that reinforce our always solving brand promise for our customers. As mentioned, we have also taken action to enhance our competitiveness by focusing on improved asset utilization, value-selling and cost management. We've made important progress in many of these areas, and we expect these initiatives to gain greater traction beginning in the third quarter and continuing thereafter. Notably, I want to highlight a few achievements by the Specialty Ingredients team during the quarter. We achieved a record quarter for total sales of our consumer specialty end markets. In addition, improved asset utilization not only led to an increase in Pharma production and sales specifically of Klucel and CMC, but it also enabled the highest quarterly HEC volume in the past 5 years. The adhesive sales and product management teams have been disciplined in raising price and continue to make strong contributions to sales and earnings growth. And finally, one of our new product launches in coatings is off to a very strong start with 14 customers purchasing the product in the first few months since its introduction. I am proud of the achievements of the Ashland team and look forward to more exciting developments over the coming quarters. Even with these gains, to reach our full potential, we have initiated several important actions. Earlier in the second quarter, we announced a plan to review strategic alternatives for our Composite segment as well as for the BDO manufacturing facility in Marl, Germany. The expected divestiture of these businesses will benefit Ashland by concentrating our portfolio on Specialty Ingredients. And secondly, as we work to position Ashland with a more streamlined portfolio focused on Specialty Ingredients, we are also taking important actions to create a more competitive cost structure. Specifically, we are committing to a program to eliminate $120 million of costs from: one, corporate SG&A; two, Specialty Ingredients SG&A; and three, manufacturing facility-related costs. Under this program, approximately $70 million of corporate cost allocated to the Composites business and the BDO facility in Marl, are expected to be eliminated through transfers and reductions. In addition, approximately $50 million of costs are expected to be eliminated to drive improved profitability in Specialty Ingredients and accelerate achievement of our EBITDA margin target of 25% to 27%. Under this program, we have engaged our leadership team to drive fundamental change across our global organization and redefined how our teams work together. These actions, in addition to lowering our cost, will speed decision-making, improve operating efficiency and drive a more customer-centric organization. Actions are already underway to achieve cost reductions, and we expect a meaningful impact in fiscal year '19 with a full run rate savings by the end of calendar 2019. As <UNK> will describe later, we intend to update you on our progress by sharing regular updates on our quarterly earnings calls beginning in Q3. I will now turn the call over to <UNK>, who will share some additional financial details from the quarter. Thank you, Bill, and good morning, everyone. Adjusted EBITDA in the quarter was $179 million, up 30% from the year-ago period. In the quarter, we reported GAAP earnings from continuing operations of $1.04 per diluted share. On an adjusted basis, we reported income from continuing operations of $1.06 per diluted share compared to $0.70 in the prior year. Ashland's capital expenditures were $36 million during the quarter compared to $41 million in the prior year period. Free cash flow during the second quarter was a negative $13 million compared to a positive $17 million in the prior year. These amounts include $6 million in restructuring costs in the second quarter of fiscal 2018 and $11 million of restructuring in the year-ago period. Our effective tax rate for the quarter after adjusting for key items, was 9%, which was below our expectation at the beginning of the quarter. The lower tax rate was due to income mix geography and has led us to reduce our fiscal year 2018 effective tax rate range by a few hundred basis points. We expect our cash tax rate for the year to be around 20%. We've made good progress delevering our balance sheet. We started the year with gross debt-to-EBITDA of 4.9 turns, and are currently at 4.1 turns due to a combination of debt reduction and EBITDA growth during the first half of this year. We remain committed to reducing leverage to 3.5 turns. Regarding the Composites and Marl divestiture that we announced in March, we have received significant interest in the business. We expect to distribute initial offering materials by the end of this month. We continue to be on track to have an agreement signed by the end of this calendar year. And of course, we will provide additional updates when we have more to share. I would also like to make a few comments regarding the cost out and organizational effectiveness initiative that Bill referenced a few moments ago. There is no question that the Composites and Marl divestiture represents a true catalyst to create a leaner, more competitive Ashland. To provide some clarification around the cost out program, let me walk you through the pieces. The corporation provides services to these businesses such as Finance, IT, Human Resources, Legal and others, and we allocate approximately $70 million to the businesses annually. As has been the case historically, we expect that a portion of this cost will transfer with the sale. Any allocated cost that doesn't transfer with the business will be labeled stranded and will need to be managed out as part of this cost out program. This will be required to keep the remaining business from bearing any of this cost. Rounding out the $120 million program is a $50 million improvement within ASI. With the likely sale of Composites and the Marl facility, it's a perfect time to rightsize the overall cost structure. We are confident that by improving our cost structure, streamlining our decision-making and creating a more customer-centric organization, we will not only enhance the growth and margin profile of the company but also create enhanced value for our customers, employees and shareholders. We are in the early stages of this process. And as we have done in the past, we are committed to executing and providing you with quarterly progress updates. The long and short of this is that we have a proven track record with this type of initiative. We've done it many times with great success, and we anticipate we will do it again this time. We look forward to providing specific details on the plan and ultimately driving the results that you and we expect. Turning back briefly to the outlook for this year, we have raised our adjusted earnings guidance for fiscal 2018 to a range of $3.30 to $3.50 per share based on a strengthening outlook for our businesses as well as a lower tax rate. For the third quarter, we expect adjusted earnings in the range of $0.95 to $1.05 per diluted share compared to $0.83 per share in the prior year period. This estimate assumes an effective tax rate of 17% for the quarter. We also reiterated our outlook for more than $220 million in free cash flow for fiscal 2018. As you're aware, we typically generate most of our free cash flow in the second half of the year. Now I'll turn the call back over to Bill. Thank you, <UNK>. We are excited about the building momentum in our core business and believe the actions announced in March and today will accelerate our journey towards becoming the premier specialty company. With that, I'd say thank you for listening and for your interest in Ashland. Grace, please open the line for questions. Thank you. Thank you for the question. And we are very pleased, of course, by the growth that we're seeing in Pharma and the personal care. I think it's a combination of items that are allowing us to deliver improved gross margins as we anticipate in the second half of our fiscal year. One is the improved mix, which we've seen and our asset utilization programs are helping us to achieve that. And we have made progress in raising price across, really, all of our Specialty Ingredients end markets. And in fact, we closed the gap considerably between raw and price in Q2, and we expect that we're going to continue to make further progress in Q3 and Q4. So with that in mind, between the mix, the asset utilization and pricing actions, we feel good about our gross margins in the business year-over-year. Sure. And I'll hand the question over in just a second to <UNK> as he's going through numerous sale processes in the past, and he can comment on the costs that typically get transferred. But essentially, the way we are looking at this is as we become a very focused and streamlined company, the many restructurings, many cost takeouts, but this is our opportunity to really take what we view as a clean sheet approach, which means looking at the businesses if we've built it from the ground up as opposed to from the long path with many of the purchases and sales that have been incurred over time. And so we're really looking at, of course, achieving the cost reductions. So that we believe that's possible. In addition to that, we believe that it can help us to reduce our footprint, whether that be manufacturing or administrative or lab, and we think we can drive a more customer-centric organization. And so yes, we have the financial targets and those are very important, but we believe that we can actually enhance what we're doing in terms of our ability to execute in the marketplace by doing things like delayering and creating greater cohesion between the teams. So that I would say hopefully answers the first part of your question. And as to the typical cost that gets transferred, <UNK>, maybe you can reference that. Sure, sure. And there's kind of several buckets to this. If you look at the Composites business and the Marl facility, which would be, call it, the majority of the Intermediates and Solvents business, there is direct cost that the business bears. These are commercial technical folks that are embedded in the business. They're part of the cost structure, part of the SG&A load that the business bears. And the expectation is that all of those direct costs would go with the businesses when they're sold. In addition to that, the corporation supports these businesses from, call it, a back office or a resource group perspective with things like HR and IT and Legal and Finance and all the ---+ all these other things that are required. And for that, the corporation allocates in the aggregate about $70 million in the course of the year to the 2 businesses. And if you look at the adjusted results for each of the businesses that we publish, those results include that $70 million. So think of that as kind of the fully loaded SG&A that's driving the operating income and the EBITDA that we're reporting for those businesses today. Presuming a sale of those businesses, again, the direct cost will go and a portion, typically, of the allocated costs also will transfer with the business. And difficult to determine exactly how much of that $70 million that we allocate will transfer with the business because we're still early in the process and a lot of that will depend on the form of transaction and all of that. But historically, when we've done these transactions in the past, let's say, for this, we've got a $70 million allocation, it wouldn't be at all unusual for around 1/3 of that $70 million to transfer with the business. Again, that's a rule of thumb, could very well be more. And certainly, the more the transfers, the less we have to deal with from a stranded cost perspective. But whatever does not transfer will become stranded cost. And to keep the remaining business whole, if you want to think of it that way, the stranded costs has to be managed out. And so that's part of what we're committing to do. And that will be separate and distinct from the $50 million earnings improvement that we expect to drive within ASI with the remainder of the program. And to be clear, it's not separate programs. We're looking at this holistically as one opportunity to not only manage our stranded cost, but to also rightsize the cost structure of the overall remaining business once a transaction does happen. Still working through that from a modeling perspective. And I don't mean to be elusive about it, but income mix, particularly from geography perspective matters. What I would tell you is that we would expect the effective tax rate for remaining Ashland to go down as a result of this transaction. On a weighted average basis, the Composites business and the Marl business would cause the tax rate to be higher. We have a little more clarity on that. We'll certainly provide an update. The numbers for the full year are our best estimate. And obviously, that presumes that the Composites and Marl businesses remain in the portfolio for the full year, which we fully expect they will based on the likely transaction time line. But once we get a little further down the pike on this, we'll provide an update. But directionally, the tax rate will go down. Well, I would say that the dynamics are ---+ there's a little bit of overlap but they're also different in Pharma. We've really had some pent-up demand for our products, which as we've moved forward with our asset utilization programs and improved our output on CMC, in MC, in Klucel and so forth, has enabled us to move more products into the marketplace and that's, if you will, kind of the order pattern. As it relates to the nutrition business, that also is true in terms of debottlenecking our capacity. But it also is a focus on driving additional volume across our assets ---+ attractive volume, but there's a focused program in that area to leverage capacity that we have in the system and the economics of, if you are leveraging that capacity, is ---+ are quite compelling. So I think the dynamics are different. The one thing that we would have that's in common is the importance and effectiveness of the asset utilization program as it relates to it. I might have missed it. Did you specify roughly how much EBITDA is exiting with the divestiture this year just so we can think about the 2019 bridge and the cost ---+ and the cash cost of the restructuring program and how much of that is coming through in 2018. And secondly, can you speak a little bit about in cellulosics, the growth you saw in energy and construction. How much of that was mix effects versus end market demand picking up and where your ---+ where that leaves your volume utilization rates. <UNK>, I\ And then secondly, as it relates to your question around energy and construction, that also includes our performance specialty growth as well. So it's a variety of markets. And over the last quarter, I've had the chance to travel and meet with the teams in Singapore, India, China and throughout Europe. And in general, we ---+ I'd say, that there's a positive environment from a demand standpoint. And so I think it's fairly broad-based. I would say once again, especially in energy and construction, those tend to be markets where we're focused on driving better asset utilization, looking at profitable pieces of business, a business that can absorb, if you will, extra capacity. So I think you're seeing signs of some of that work coming through in the growth in those market spaces. Yes, I mean, we have a variety of price increase efforts that are ongoing. We've completed a lot of them. And so as contracts come up, we'll obviously ---+ we integrate pricing and pricing adjustments in that context. I would say that we feel very good about the pricing actions relative to the raw material inflation we've seen up to this point. As you know, raw material prices can move around. We've seen a little bit of volatility just even over the last few weeks. And so I think ultimately, if we see an increase in raw materials, we'll have to go out again and push for more price. So I don't think this is something that will come to a close, but we do feel very good about the progress we're making on it. So I believe they ---+ we'll look at the history because I believe they were down versus a year ago. And so some of that is really just a customer mix as we focus on trying to drive a more profitable mix. We did exit a facility in Utah. We talked about that before, which had relatively significant sales but no EBITDA associated with it. And so we're really focused on the earnings and the mix of the business and so that's all right. And I think ---+ and relative to the Utah facility, that was actually part of the plan when we bought the business. That's one of the things that we would need to do pretty early on so we've executed on that, and that's pretty much done. Frankly, we're likely to sell that property, which would flow through purchase accounting and reduce the amount of goodwill that we've booked. And I'd just also add with Pharmachem that there are aspects of our sales that it's affecting Klucel. We're getting Klucel that's moving the marketplace, aloe, which is really being sold through the personal care business. Clary sage same thing. And some of that production capacity is helping us with our biofunctional growth. So it's making a major contribution for us. And becoming more and more integrated into the overall Specialty Ingredients business, which is the point. Well, certainly, the initiatives that we've put in place to drive share gains, sales gain, sustain themselves. We have a normal seasonal pattern where you do see increased sales in the second half of our fiscal year. And I would say that one of the points that we always point to around this time of the year is the architectural coatings season, how strong that will be. We see good demand patterns as we start the season. And so kind of the drawdown of that as we go through the season is something that we'll give better clarity in as we move forward. But it's consistent, I think, with the past and certainly, over the last few quarters trying to drive a more profitable mix and a greater volume growth. Yes, in terms of ---+ I'll address the cost out piece. It would certainly be our expectation that we see the benefit of the cost out efforts early in the year and growing throughout the year. That would certainly be in line with what you've seen with past programs. And so it would obviously be our intent to do that. And frankly, we'll get things done as quickly as possible. It benefit the business and it also eliminates the distraction of the process, which is good on both fronts. And I think in terms of the continued organic growth of the business, we can certainly point to better asset utilization and building more momentum around that and continuing to leverage our manufacturing footprint, while growing volumes and getting the enhanced margin from that contribution that, that bring. So certainly, it would be our intent to continue what we've been doing and to grow on it. Sure. So the increase in capacity would be roughly in the order with the investments being at about 50% of ---+ versus the original capacity. And it ultimately is the base that would enable us to double the capacity. Basically, you would need to make an additional capital investment and some ancillary equipment. Important but ancillary equipment to allow, if you will, the 2 reactor vessels to fully operate independently. And in terms of how quickly, we're already beginning to look at what that might mean in terms of how we'd get to that capacity. We have not been in a situation now for a couple of years where we've been able to go out with our sales team and say go push from our Klucel sales because we've really been capacity limited. And so the rate of the increase, I think, we're going to find over the course of the, let's say, the next 6 to 9 months. We certainly have the authorization to do so. And as we think about the process, we're going to look at it, really, from both sides of the equation in terms of what's, overall, more accretive to the business and what fits the strategy. But for sure, the idea of share repurchase is something that we've been keen on in the past. We've, in the past several years, done about $2 billion worth of it. And so it's certainly something that we're not shy about doing. And you're correct, our shares compared to a lot of other companies in the space are under valued and we certainly understand that and believe strongly in the upside of the stock. Sure, sure. And as you identified, really, a significant portion of what we do is in ---+ or we consider to be a more premium value proposition where we're really adding additional functionality, I referenced a product during my earlier comments, which fits right into that, and we can talk about that at some point. But those are areas where the ability to add value allows us to work with the customer to move the pricing appropriately. In other parts of the market, as we mentioned, it's a little bit more competitive, other regions where we have some additional competitors. But I think we've also seen that the general supply demand in the marketplace seems to be getting just a little bit tighter on that front. So we ---+ we're pushing and I think we've made a lot of progress, and we feel good about that progress. There's always more to do. Well, that region has been a growth area for us. And obviously, that's an area where we sell significant value products. So it's been actually, a very nice growth area. And with that, we anticipate that we'll grow through the remainder of the year, unless there's a fundamental economic change. We really expect that we will continue to grow in the region. We don't see it as being problematic. Yes. I mean, the European team has done a really nice job of executing through the first half of the year and has very specific plans and initiatives around continuing that strong execution throughout the balance of the year, but obviously, into the future as well. And I'll ---+ I applaud them for the work that they've done to really be a stronger contributor to the overall results.

2018_ASH

2016

FSP

FSP #Thank you, <UNK>, and good morning, everyone. On today's call, I'll begin with a brief overview of our third quarter results. Afterward, our CEO, <UNK> <UNK>, will discuss our performance in more detail and provide some of his remarks. <UNK> <UNK>, our President of the asset management team, will then discuss recent leasing activities, and then <UNK> <UNK>, our President and CIO, will discuss our investment and disposition activities. After that, we'll be happy to take your questions. As a reminder, our comments today will refer to our earnings release and our supplemental package in the 10-Q, all of which were filed yesterday and, as <UNK> mentioned, can be found on our website. We reported funds from operations, or FFO, of $26.7 million or $0.26 per share for the third quarter of 2016, and $79.4 million or $0.78 per share for the 9 months ended September 30, 2016. Compared to 2015, our 2016 FFO is about $300,000 lower for the third quarter and about $400,000 lower for the 9-month period. The FFO decrease was primarily from the impact of asset sales and loan repayments we've received during that time, and was partially offset by three acquisitions we've made, one on April 8 of 2015, June 6 of 2016, and lastly, this past August on the 10th, August 10th. FFO on a per-share basis decreased $0.01 quarter-over-quarter for the third quarter and $0.02 year-to-date comparative due mostly to a higher share count than we have in 2016 compared to 2015. Our FFO per share of $0.26 for the third quarter was in line with our expectations. Turning to our balance sheet and current financial position at September 30, 2016, we had about $898 million of unsecured debt outstanding, and our total market cap was $2.2 billion. Our debt to total market cap ratio was 39.9% at quarter's end, and our debt service to coverage ratio was about 4.9 times. The debt to adjusted EBITDA ratio decreased this quarter to 6.9 times as of September 30. So if you adjusted for the EBITDA from the property we acquired on August 10, it would be slightly lower than that. From a liquidity standpoint, we had free cash balance of about $13.4 million at September 30, and $220 million in availability on our $500 million unsecured line. As a result, we had approximately $235 million of liquidity as of the end of the quarter. We had a very busy third quarter with respect to capital activities. We closed on an extension of our $400 million term loan and placed a forward swap that fixes LIBOR at 1.12% for the forward period from September 2017 to the new maturity date of September 2021. At our current spread of BAA3 rating with Moody's, it would be at 1.45% in the loan agreement currently. So the all-in rate would be 2.57% and would start at the end of September 2017. We think moving the $400 million maturity out of 2017 and into 2021 cleared some uncertainty around debt maturity and interest costs for us for some period of time. We also were very busy with an equity offering we completed during our August raising, about $82.9 million in net proceeds. And we issued just over 7 million shares, including the overlap on that transaction. We remain very comfortable with our leverage and have managed our unsecured debt as part of our strategy. We can opportunistically sell some noncore assets and reinvest proceeds into the properties as we've demonstrated. We continue to focus on acquisition of assets in our core markets as we find the right opportunities. With that, I'll turn the call over to <UNK>. <UNK>. Thank you, <UNK>, and welcome to Franklin Street Properties' third quarter 2016 earnings call. As <UNK> just said, for the third quarter of 2016, FSP's funds from operations, or FFO, totaled approximately $26.7 million or $0.26 per share. These results are within our guidance range for the quarter. Our dividend was $0.19 per share for the quarter, and the FSP Board of Directors continues to feel very comfortable with that level of dividend payout. At this time, our FFO guidance for full-year and fourth quarter of 2016 is being adjusted to an estimated $1.03 and $0.24 per diluted share respectively. These adjustments to our FFO guidance primarily reflect the increased shares outstanding from our recent equity offering. More importantly, we continue to believe that 2016 will mark the bottom of the reductive effects that our ongoing property portfolio transition is having on FFO. We are reiterating our forecast for resumed FFO growth in 2017 and beyond, propelled primarily from our projected realization of increased rental income from select new property investments, select new development or redevelopment efforts such as 801 Marquette, and additional leasing in our more recently acquired urban office properties, many of which contain meaningful value-add square footage. Prospective new tenant leasing activity at these properties remains strong. We anticipate providing the market initial full year 2017 FFO guidance before year-end. I will now turn the call over to <UNK> <UNK>, President of our property management company. <UNK>. Thank you, <UNK>. Good morning, everyone. The third quarter can be summarized as a continuation of the second quarter. There was positive momentum for new deals and we are encouraged by the solid activity, including tours and letters of intent. FSP remains bullish on Minneapolis and Denver, which happen to be the same markets with our most significant upside due to the current vacancy. The upcoming transformation underway at 801 Marquette, Minneapolis, has been well received and is gaining momentum and serious interest. Atlanta continues to be very consistent with steady activity and that market has the largest amount of rollover for FSP in the next 12 to 15 months. Dallas incurred several expirations in Q3 and we are excited for that market to contribute to (inaudible) growth in the near future. Houston has witnessed a slight pickup in touring action, which may be a sign that the energy sector is looking forward to 2017. With that, I'll hand it over to <UNK> <UNK>. Thank you, <UNK>. Good morning, everyone. I will discuss and update our current investment picture and strategy. At first though, the strategic investment focus at FSP remains on building sustainable FFO growth and value creation within our portfolio, and in particular, within our five core markets. And we continue to believe that there's three key drivers to achieve those results. The first is through select new investments. The second is through leasing and the third driver is through select new development and redevelopment efforts, such as those occurring at 801 Marquette in downtown Minneapolis. On the disposition and asset recycling front during the third quarter, FSP continued our efforts to selectively dispose of noncore assets if appropriate pricing results. We're looking at currently, and working on at various stages, several potential dispositions, none of which are firm or hard on their deposit at this time; but that could result in up to $100 million-plus in gross proceeds over the coming quarters. Again, it is uncertain and too early to say whether any or all of these respective transactions will occur, but we'll keep the market notified on any specifics if warranted. Also, FSP is currently identifying properties for potential disposition and our further properties for potential disposition in our portfolio, and we'll keep the market posted on that when warranted. To date in 2016, FSP has disposed of approximately $58.19 million of assets ---+ Lakeside Crossing One in St. Louis in the second quarter for $20.19 million and the repayment of our first mortgage loan on 385 Interlocken during the first quarter for about $38 million. Since 2014, we've sold properties or had mortgages that we held repaid to us of approximately $180 million through our repositioning program. This program has allowed us to recycle out of a number of noncore and more commodity-oriented properties and loans and into a more focused urban infill portfolio within our core five markets that we believe have stronger long-term FFO and profit growth upside. On the acquisition front, on August 10, we added to our position in midtown Atlanta with the 160,000 square foot acquisition of Pershing Park Plaza for $45.5 million. As a reminder on June 6, we added to our position in downtown Minneapolis with the 326,000 square foot acquisition of Plaza Seven for $82 million. FSP is currently actively working on about $150 million worth of additional potential new urban and CBD acquisitions within our core markets. And it is too early to give any specifics on those or any assurance that any of them will transact, but we're working on those opportunities. On the development front, we're continuing with our efforts at 801 Marquette to transform that property into a premiere quality asset with a similar experience to a brick-and-timber themed building. Interior demolition and construction work began during this past third quarter. We expect the project construction completion to occur at the end of the first quarter of 2017. We're expecting rents in the $15 to $18 net range versus previously expired rents of about $4.75 on a net basis. Thank you for listening to our earnings conference call today. And now at this time, we'd like to open up the call for any questions. <UNK>, this is <UNK>. I think on the acquisition front, our view is acquisitions will match off against disposition proceeds, so that the transition from suburban to urban will continue. The timing differential there between disposition proceeds and acquisitions will vary. But I think you're exactly right, that sort of net [net] additional acquisitions over and above disposition proceeds are not likely. The equity offering that raised that capital was earmarked for a couple of things, but the two major ones were the Pershing Park purchase in midtown, which we completed, but also capital to in fact complete the re development of Marquette and hopefully the successful leasing of Marquette, which will be, if we lease Marquette at the rates and goal that we have, will be actually very accretive to that equity compared to again what was there before we did the redevelopment. So there is some ---+ as you said, some near-term dilution until when the new Marquette gets redeveloped and leased. But again, I think the matching of acquisition and disposition proceeds is where we go in 2017 and where we raise ---+ where we really raise the bar and where we really raise the ---+ get the FFO rising again. And we absolutely believe that we'll be in leasing space that we have in the portfolio. And to that regard, let me just ---+ to the second part of your question, turn it over to <UNK> <UNK>. Thank you, <UNK>. <UNK>, as you probably have noticed, the bulk of the leasing activity over this year and last year have been predominantly renewals. And we have been chipping away with early renewals at the exposure in 2017. So there really are not too many significant hits in 2017, in fact for the next 15 months, Murphy Oil being the one exception, which is a known departure. And we're already seeing activity there. So the combination of the remaining expirations in 2016, which include a bunch of month-to-month leases that we don't expect to go away, along with the expirations in 2017, is a little bit less than 9% of the portfolio. So we feel that that's very manageable and as you probably read and seen the bullet points, we're gaining momentum and encouraged by the activity. Hopefully that answers your question. The absolute ---+ Yes, we would be absolutely expecting it to go up quarter-by-quarter. We will have the hit into the second quarter for Murphy, but we're expecting the 801 Marquette property to come on line near the end of the first quarter. We've got great activity, steady activity, in Atlanta, which has the bulk of the role in 2017. And on current vacancies in Minneapolis and Denver, we've had encouraging, increasing momentum. In fact, for the quarter, we actually had slight net absorption in Denver, which is a great sign. We've improved those buildings with great amenities and we're looking forward to seeing the results. The majority of it, yes, I would say that that's fully ramped up and contributing fully, but we are marketing and would hope that we would get ahead on the leasing and have some contribution in 2017 as well. And the rest of the TCF vacancy from that space in 121 South 8th as well. So we'll enjoy (inaudible) on the color of Minneapolis, but we've had great activity. So we would think that 2017 would have meaningful contribution in Minneapolis. <UNK>, this is <UNK>. On the asset recycling front, we are ---+ we continue every quarter to look at our portfolio to determine which assets we think we've maximized value on already to test and see what the results are in the market. Right now, we're looking at and working on several potential dispositions that could total up to about $100 million. We're also identifying a couple of other assets that would be in excess of that for potential marketing in 2017. And so for us, asset recycling is going to be a prominent part of our investment plan and the determination of which ones get sold and when will be a function and part of do we get pricing that matches, or as close to our expectations of value. Or is there more value that we think we can add to the properties. But I do think that you'll see 2017 even through the end of this year, continue to see us focus on dispositions at the right moments. And we're going to identify the right assets at the right time to do that with. Yes, we do anticipate being able to fund acquisitions with dispositions. The timing, as <UNK> mentioned, of when exactly that occurs, is difficult to predict. But we do anticipate dispositions in 2017 and through the end of this year that would fund acquisitions. Yes, sure. I think what you're looking at is probably the result of some early renewals in noncore markets. As you saw in our bullet points, we had a few deals that were in the Midwest that were noncore markets. The numbers that I'm looking at for comparing 2015 to 2016, we're seeing an increase in GAAP rents from expiring leases. And the average cost of deals actually this year is slightly down versus last year, but it continues to be in the $4.25 to $4.50 range per year, which I think is on the low side for CBD urban assets, and I think is reflective of quite a few renewals in the noncore market suburban assets. So I would expect the cost to be trending closer to $5 a foot per year for TI leasing costs. I would expect the rents to be increasing. I was looking at the most significant 23 leases that we've done year-to-date. And on a GAAP gross rent basis, those new rents compared to the expiring leases, are up approximately 8%. And on a net GAAP rent basis, those are up even more in the 13% to 14% range. So I think those trends are positive, and as you see more urban leasing, you'll see those rents ---+ the weighting towards urban properties, you'll see those rents increase. Hopefully that answers your question. Sure. I'll tackle Burger King and then let <UNK> <UNK> talk about Minneapolis. The Burger King space, as you probably have heard, is an expected departure. We have gotten out in front of it and we've had some rate credit tenant prospects for multiple floors. Working with Burger King is proving a little bit challenging to try to arrange those tenants to take over and create a multi-tenant property, but the reception of that property has been really great. It's a beautiful building and just trying to get burger King out of the way and get started. So all things static, if there's no significant changes, we expect that property to do well. <UNK>, do you want to spend a little bit of time on 21 South. Yes, sure. Good morning. We're seeing, as <UNK> said, activity in Minneapolis has been very good at 121. We're also seeing activity in tracking fields on 801 Marquette. And I think the two go hand-in-hand as 801 Marquette's development is moving along in the market has a better understanding of what's going to be happening right next door, or actually right in the lobby of 121 South 8th. We're starting to see more real activity and interest in the Tower Building or 121. So we're tracking about 200,000 square feet of real active deals right now in the market that have expressed interest in 121, toward it, and we're working on a number of exchanging proposals on some of those. And some of those are looking at both projects. So I think all in all, we're really positive about the activity of the building. And as 801 progresses, I think it just bolsters the activity in the Tower as well. This is <UNK> <UNK>, <UNK>. The end of first quarter is when we expect the development to be completed. As far as the leasing effort goes, we're canvasing a wide range of prospects. And so whether that be a single tenant for the building or multiple type tenanted is unknown at this time. But it has been very well received. And so I'm expecting over the next few months, hopefully the next quarter, we'll have some news for you to share details. <UNK>, am I missing anything. Is there anything else that ---+ No, I think that answers the question. We are seeing increasing activity at the property. It is a construction site right now; it's not a building that a prospect can tour physically. So it's a lot of presentation of materials and what's coming. But so the activity is good, but as far as the timing of leasing, that's all to come. We continue to work with prospects and market the property and we are delivering I think one of the most exciting projects in the market and with best-in-class amenities. And we're getting the commensurate reaction and response to that. Hi, <UNK>, this is <UNK> <UNK>. The Atlanta acquisition was a marketed deal. The acquisitions that we're working on right now, which comprise one or more deals in our five core markets that are similar to what you've seen us acquire this year in downtown Minneapolis and midtown are either CBD, urban deals, really in terrific locations. We're looking at one or more deals that comprise a total of about $150 million and all of what we're looking at right now is off-market. Every property that we're looking at is off-market and so which is why I'm not going to give very much detail right now for competitive reasons and we're not under firm on any contract or anything with that. So the deals we're looking at are off-market and we think have very similar characteristics to what you've seen us acquire this year and before this year, i. e. , prices that are well below their estimated replacement costs, properties that have compelling value creation opportunities in the near, intermediate or longer term, depending on the asset; and properties that have good in-place intrinsics as well. <UNK>, this is <UNK>. I think what may be missing is the effect of the offering in the fourth quarter. With other analysts' reports, I think if you look at where we were in the range, we reported in Q3, which was absent any of the capital activity we did in Q3, it numerically makes sense to come out where we did. The full amount of shares outstanding for the fourth quarter would be the full 107 million we have close equity offering. So that would definitely impact the fourth quarter. Hopefully that answers the question for you. <UNK>, this is <UNK>. I think again, the main effort from the offering was to put that equity into the rent-producing real estate. And a great part of that equity has not yet done that. That is really the Marquette property deal. It did pay down debt, but that ---+ when we do our projections, or our guidance, it is always guidance that is given without regard to capital market activity. And that includes major acquisitions, dispositions, and equity offerings or debt offerings. So when those occur, then the former guidance does need to be adjusted. We haven't done an equity offering in a number of years and again, this deployment into rent division real estate has yet to occur for a large part of that equity offering. Hence, the lower fourth quarter. Yes, sure. <UNK>, it's <UNK> <UNK>. So as you know, yes, you're right that that is primarily due to the Denbury expiration, a little over 100,000 square feet. We had mitigated that partially with one of the subtenants by leasing about a third of the building. So 60,000, 70,000 square feet roughly still remains to be leased. That property was a single-tenant building and self-managed by Denbury, and so it's taking some time to take over the building which we did in the middle of the third quarter and put in some amenities, give it a bit of a facelift and get the leasing activity ramped up. The summer slowdown due to the heat in Texas certainly was felt, but Dallas, as you know, is extremely strong. The Legacy market in general is one of the best submarkets in Dallas and so we're expecting that to yield great results. The early interest in the property again, some household names of some good credit tenants. And so just a matter of time, we believe, before we get that property restabilized. It's comparable. It was in the $17 net range as far as expiring rent and we're seeing rents in the core of Legacy between $23 and $27 net. So we think that property, which is not in the core of Legacy, just a little bit off-center [Rice], we certainly think that we can get in that $18 to $22 range net. So we would expect it to increase slightly. No, no, the Murphy building ---+ the Murphy lease is at Park Ten at Houston. That's in the Chicago suburbs and we did a long-term renewal and a downsizing. We've had great reception there from the subtenants going direct, as well as activity for new tenants. So that is ---+ Evanston is a very small urban environment. And we have a great competitive advantage there, so we're expecting good things in short order there. Thank you, everyone, for tuning into our earnings call. We look forward to our next earnings call, for sure, and seeing many of you in Phoenix. Thank you.

2016_FSP

2016

ACHC

ACHC #Thanks. Sure. I want to thank everyone for joining us on the call today. For the team here at Acadia that are listening in, thank you very much for all that you're doing. We're very, very proud of what you're doing on a daily basis in taking care of our patients. And once again, thank you for being a part of the family here at Acadia, and we'll look forward to talking to you all on the next earnings call.

2016_ACHC

2018

MDXG

MDXG #Thank you, <UNK>. Good morning. We appreciate you joining us for this quarterly update. I have with me Bill <UNK>, our President and Chief Operating Officer; Mike <UNK>, our Chief Financial Officer; Chris <UNK>, our Executive Vice President and Chief Commercialization Officer; and Debbie <UNK>, one of our other executive vice presidents who has wide responsibilities. First, please refer to our December 13, 2017, press release for our 2018 financial guidance. Given the investigation by audit committee, we cannot release the specifics of our financials yet. However, we can give you sufficient information to assist you in understanding how excellent our first quarter was. For the first quarter, we exceeded top end of our revenue guidance nicely. Recall that our top end revenue guidance was $92 million. Also, our distributed and OEM revenue was less than 5% of our total revenue. That's the way it's been for a number of quarters now. Our cash flow for the quarter was strong, and we're tracking to or exceeding our annual goals on gross margin of 89% to 90%, operating income of 15% to 17% as well as fully diluted GAAP EPS of 30% (sic) [$0.30] to 35% (sic) [$0.35] and adjusted EPS of 45% (sic) [$0.45] to 50% (sic) [$0.50]. Cents. Cents, excuse me. Refer to the December 13 press release for more details on those particular items, if necessary. We're also increasing our 2018 revenue guidance and providing guidance on our second quarter. We had previously communicated revenue guidance in that press release for 2018 of $383 million to $387 million. We're increasing our revenue guidance range to $389 million to $394 million because of our performance in the first quarter and of course, anticipated performance throughout the year. Relative to the second quarter, net revenue is now expected to be $96 million to $98 million. We had, what I consider to be, an excellent quarter. Operationally, we continue to improve our manufacturing processes, which now include the use of lasers for cutting and perforating, and that could further enhance our gross profit margins. Additionally, all of our functional areas performed very well. The efficiency and effectiveness resulting from the implementation of a new Sales Management System is proving to be an extremely effective asset, and will continue to make a substantial difference in our ability to accomplish our sales planning and execution in quarters and years ahead. We now have over 400 dedicated sales representatives, and that group is growing rapidly. Now I'll turn the meeting over to Bill, and I'll have some further comments later. Thanks, Pete. Good morning, everyone. Our first quarter 2018 was operationally one of the best first quarters in the past several years. As most people will recall, the first calendar quarter tends to be the softest quarter of each year for many reasons. This year, we overcame the normal insurance deductible resets, a challenging winter that just seemed to never to stop, as well as the external noise from our current situation. With all these factors in play, our teams stayed focused and performed extremely well. For that continued performance and focus, I thank each and every member of the MiMedx team. MiMedx is keenly focused on serving clinicians and the patients they treat. We also continue to be very focused on expanding our sales footprint, and further penetrating each of the markets we serve. We are managing our territories with a vision 4 to 6 quarters out, and this continues to help our predictability and our ability to forecast with good accuracy. In our February call, I mentioned that we had reached 400 field sales personnel earlier this year, which was up from 350 in September of last year. Today, when including recently accepted offers, we are at about 425, with plans to get to 450 field sales personnel by the third quarter. This puts us slightly ahead of our previously discussed pace. Our detailed planning, territory management, discipline, education, execution and accountability, particularly through the use of our Sales Management System, or SMS, continues to drive predictable and sustainable results. The other areas of our operations are also performing quite well. We are expanding our research and development organization and continue to add personnel who have experience with biologics and other more complex regulatory past. We are looking at our 5-year-plus strategic plan to evaluate how we can expand and improve our product pipeline and R&D projects. It is a bit early to discuss the details of this initiative, but at the appropriate time, we will discuss our pipeline planning. It is definitely an exciting time that we're going through. Our processing, recovery and quality groups continue to do an excellent job in expanding production and in innovating the process to continue finding ways to improve efficiencies and ultimately, lower costs. We continue to hire and expand in virtually all areas of our business. We continue to have a strong candidate base and are making some great additions to our organization. One area where we don't have enough capacity is office space. We are running very tight in all 3 of our current facilities. Therefore, we just signed a lease for another 28,000 square feet facility that will be split with approximately 8,000 square foot of the office space ---+ will be office space, and about 20,000 square feet will be distribution, warehouse and packaging space. This building is located on our main business park in Marietta, Georgia and is 2-building away from our headquarters. This addition gives us just north of 170,000 square feet of space for our distribution, operations and offices. We still need more space this year because of our growth. So we also signed a letter of intent on another property for about 40,000 square feet that will be used as office space. We hope to sign a contract on the incremental space in the next several weeks. Regarding our intellectual property, we now have 134 issued and allowed patents in total, with 51 of them being placental-based. We still have over 120 total patents pending, more than 90 of which are placental tissue-based, all of which, we believe, offer a significant barrier to entry for our competition, and enables us to confront other patent infringers, if needed. Regarding our open patent lawsuits, we don't have any new updates for you this time, but as developments occur, we will keep you informed. Now I'll turn the call over to Chris <UNK>. Thanks, Bill, and good morning. First, I want to thank our whole team for the diligence and hard work that they each exhibited in pursuit of outstanding performance. The first quarter is always our toughest quarter of the year, and everyone buckled down and worked the Sales Management System business plan that they each formulated with management. We are energized for our continued progress in our markets and are continuing to hire within the sales organization and support groups. As Bill noted, we expect to continue hiring beyond our budget of 450 sales personnel by year-end in order to meet our growth plans and to further access the market opportunities. As we are well into the second quarter, I want to address the importance of our product and specialty initiatives. It is paramount that we continue to focus, first and foremost, on our core Wound Care products. As the recognized leader, it is critical for MiMedx to continue to gain market share as well as drive market expansion. Our competition is trying to lead with price, and say their products perform the same. Even though there is no Level I clinical data to support those claims. We continue to be successful in communicating and educating physicians on our safety profile and efficacy as well as the importance of processing, quality and consistency, as exhibited by our U.S. Pharmacopeia mark and compliance to good manufacturing practices. Our MiMedx representatives are focused on being a part of making a difference in patients' lives. We continue to invest in medical education and peer-to-peer symposiums. Once providers have experienced the power of healing that resides with MiMedx' product offering and wound healing, then they begin to expand their applications into foot-and-ankle pain and lower extremity in complex wound and surgical procedures. MiMedx is also continuing to invest in clinical studies, because we know physicians want to understand the science and clinical data in order to make a well-informed choice as to what is most beneficial to their patients' healing and outcomes. It follows that physicians may conclude that MiMedx' products are the best option for the patients. We feel strongly that physicians and hospital organizations should be given LI clinical options, and we deliver solutions and economic value that enhance healing and improve outcomes for their patients. Our new products, AmnioFill and EpiCord and AmnioCord made terrific strides in the first quarter. While still a small percentage of total revenue, these products are gaining momentum with a strong repeat customer base that can accelerate the surgical and wound growth for the second quarter and balance of the year. AmnioFill and Epi and AmnioCord also offer our sales force a cross-selling opportunity into their base business. Regarding surgicals, sports medicines and orthopedics. Our pain and surgical team efforts continue to gain traction. Surgical is finding a strong base and acceptance in the operating room with surgical specialties through increasing value analysis committees, better known as VAC, approvals. Surgeons are adopting MiMedx products for enhanced healing in high-risk patients with complicated wounds and in specialized surgical procedures. The musculoskeletal pain specialist team is committed to educating the market on the attributes of the AmnioFix Injectable platform under the HCT/p Section 361 pathway. With the plantar fasciitis Phase IIb efficacy data out now and publication coming in the near term, we have outstanding outcomes that can be shared with podiatry, foot-and-ankle orthopedics and physician offices treating musculoskeletal pain. AmnioFix Injectable is highly differentiated from alternative options available today and should be instrumental in offsetting the common, first-line therapy use of degenerative corticosteroids as well as minimizing the prescribing end use of opioids to relieve pain. We believe we will make good progress through continued education, as we initially target the cash-pay market and ultimately believe peak AmnioFix revenue for musculoskeletal pain management, including an osteoarthritic pain indication, could exceed $4 billion. MiMedx employees are passionate to assist providers and facilities to deliver clinically and economically viable product solutions to its patients. I'm confident that we are part of the fiscally responsible solution that will allow providers to practice evidence-based medicine to treat their patients. And now I'll turn it over to Debbie. Thanks, Chris. Good morning. Today, I would like to start by updating you on our IND trials and RMAT designation. As you might remember, we are currently running 4 IND, or Investigational New Drug trials, as we progress toward the filing of biological license applications with the Food and Drug Administration for micronized dHACM or AmnioFix Injectable to treat certain musculoskeletal pain management indications. We currently have our manuscript for the primary endpoint measurements for our plantar fasciitis Phase IIb trial under review. We hope that it can be published in the next 60 days. Once the study is published, we plan to submit to payers for coverage determination. This product has proven repeatedly to be highly efficacious. At the 3-month follow-up visit mean VAS, visual analogue scale scores for pain in the treatment of the group were 76% lower compared with a 45% reduction in mean VAS scores for control, which equates to a 54-point drop in the treatment group versus a 32-point drop in the control group, or a p-value of less than 0.0001. Additionally, subjects who received a micronized dHACM injection had a mean reduction of 60% in the FFI-R, foot function index score compared to baseline, which subjects who received the saline placebo had a mean reduction of 40% in FFI-R score at 3 months compared to baseline, which equates to a 36-point drop in treatment group and a 22-point drop in the control group, with a p-value of 0.0004. Enrollment in our 2 Phase III clinical trials for plantar fasciitis and Achilles tendinitis are going very well. Currently, we anticipate the plantar fasciitis trial will finish prior to the AT trial, but they are both ramping nicely. Our Phase IIb trial for treatment of knee pain due to osteoarthritis started enrollment in late March. Additionally, we are granted the regenerative medicine advanced therapy or RMAT, designation for this IND, with MiMedx being one of only 14 companies in the United States to receive the designation to date. In granting the RMAT designation, the FDA committed to a multidisciplinary, comprehensive discussion with MiMedx regarding the company's development program for AmnioFix Injectable for use in the treatment of OA of the knees. This includes planned clinical trials and plans for expediting the manufacturing development strategy. We have submitted our meeting request to meet with FDA to discuss ways to expedite approval for this indication. The clinical, regulatory and scientific teams have done an exemplary job in bringing these INDs to the point ---+ to this point in a short period of time. The FDA routinely inspects pharmaceutical and medical device and HCT/p companies as part of their duties. At the end of an FDA inspection of Form 483, a notice of inspectional observations may be issued. These observations are commonly referred to as 483. The FDA inspector may issue a 483 when they're ---+ in their judgment, they observe something that may violate regulations governing the inspected company. Receiving a Form 483 is very common, and most companies are accustomed to it. Companies such as Medtronic, Nemaura, et cetera, all have received such inspection findings. In fiscal year 2017, the FDA actually issued 5,155, Form 483s across the industries they regulate. Companies receiving the 483 should respond to the FDA within 15 days to describe the corrective action plan to realign our activities with regulation. This response is not mandatory, but uses a method to show the FDA that the company takes the observation seriously and are treating them as an opportunity for improvement, with a specific plan and time line to resolve the issue. When issues are resolved, then no further action is taken. If the issues were not resolved, it could result in a warning letter. MiMedx has never received a warning letter. Additionally, on the clinical studies front, we have completed the study for EpiCord, in the treatment of diabetic foot ulcers, which includes a per protocol population of 139 patients across 14 centers. Healing rates for EpiCord-treated patients were 79% and 83% at 12 and 16 weeks. These healing rates represent a significant improvement over the control population with p-values of 0.0067 and 0.0040 at 12 and 16 weeks, respectively. We are preparing the manuscript for publication and look forward to showing the publication results with you soon. For the DFU study, we will be presenting a poster at SAWC, which includes a per-protocol population of 98 patients across 14 centers. Healing rates for EpiFix-treated patients were 81% and 85% at 12 and 16 weeks. Similar to EpiCord, these healing rates also represent a significant improvement over the control population, with p-values of 0.0093 and 0.0356 at 12 and 16 weeks respectively. A number of surgical studies are also nearing completion and heading for publication. From a pair perspective, we had a significant win with Anthem, they have reduced the criteria for approval of EpiFix for VLUs and DFUs after seeing our additional studies, and have experience with efficacy of EpiFix, which has resulted in a 40% increase in Anthem approval since the policy change. Since the Bianchi VLU study, we have added a total of 4.3 million covered lives or DFU and VLU in 2018. I will now turn the call back over to Pete for closing remarks. Thank you, Debbie. Obviously, we continue to relentlessly execute on our business strategy. We continue to fulfill commitments made to you, our shareholders, we continue to fulfill commitments made to our patients, and to our scientific and clinical endeavors. We continue to build assets of this business in a very routine and programmed manner. Our cash flow is strong and is expected to continue to build. In fact, I believe you'll see a significant buildup in our cash in the second quarter, which is generally a way the business has been run for years. I will remind you that the company has no debt and sees no need for debt financing at this point. Recall that we've repurchased over $130 million of our stock in the last 3.5 years. That cash came from our strong earnings and resulting cash flow. The company is currently very undervalued in my opinion. There's another company I'll mention that has gross profit margins and growth rates of approximately the same as ours in the healthcare area, that company's name is Abiomed, the company is currently trading at approximately 22x this year's revenue. I'll say that again, 22x this year's revenue. MiMedx is currently trading at about 2.3x this year's revenue. I'll say, this is clearly a demonstration of an undervalued situation on our part. At some point, the audit committee of our Board will complete its investigation and we will then publish our audited 2017 financial statements and our reviewed first quarter financial statements. It is management's opinion that your company has a very bright future ahead, as we continue to grow in the advanced Wound Care sector of healthcare, and now, very importantly, bring new therapies to the market through our FDA, BLA, IND processes. I want to thank our investors, who have been patient enough to retain their stock ownership in the company during this time. We want to make it clear that companies continue to perform operation like we have over the years, which led MiMedx to become the fifth fastest growing public company in America according to Fortune Magazine. Finally, I want to thank our employees and the Board of Directors for their dedication and ongoing commitment. We thank you for listening today. We look forward to speaking with you again in near future, about some new opportunities. On that call, we will open it up for questions. Thank you very, very much.

2018_MDXG

2016

ULTA

ULTA #Yes, let me start there. So as far as the $80 million is concerned, I mean that's all on Ulta, right. So we're stepping up with the CapEx investment. And again, that $80 million, partly it's not just a boutique drop-in, right. So again, there's 500, roughly 500 individual boutique drop-ins across the chain. But we're going to take the opportunity, when we're in those stores, to also refresh our fragrance fixtures in those stores, and Ulta Beauty Collection fixturing as well. As well as other miscellaneous things, like you're in a store, touching it up and causing some chaos, you're going to take the opportunity to do what you think is best for the guest long-term. So that's how we're deploying the $80 million. Again, each vendor, we have a different set of economic terms with them. So I think by and large, it's kind of a payroll share kind of model, right. So again, they're trained, they're our associates, they're on our payroll. The vendors provide, our vendor partners provide excellent training for them. We kind of share the payroll model on a go-forward basis, and it takes awhile. Again, we install the boutiques up front, and it takes awhile for those to reach maturity, right. So again, as we go over time, we add more payroll resources there to make them more productive. So I think that's it in a nutshell. I guess, we could echo those comments that you've heard from others. We have ---+ there's no shortage of great real estate sites that we're seeing, as we look at proposals across the country. Again our stores, we have a typical, I guess, best-in-class kind of set of co-tenants that we would like to operate with. But we have proven and demonstrated over time, Ulta stores work on a wide variety of real estate locations and types. So feel very confident about our current pace of 100 stores a year, right, that we've talked about here, as our medium term target. We just came back, I guess, from ICSC here in the last day or so. And again, we've ---+ the landlords, the relationships that we have are very strong. We know Ulta is being sought out as a tenant of choice. We're proven traffic drivers to centers in the beauty category is something that many landlords, that's a piece of that offering, retail offering that they'd love to add to the mix overall. Yes, I mean, I don't ---+ we haven't, we're always very competitive, when we get into the rent structures and the economic terms of our deals. I mean, I think Ulta probably best-in-class, when you look at our operating model overall. So it's not like we're seeing some big step decreases in rent terms or anything like that, at least not at this stage. Now a lot of these liquidation events are kind of in process, I guess, I would say right now. So I guess, that's yet to be seen. And we don't ---+ it's not causing us to rethink the number of stores that we open every year, right. A 100 a year, again there's no magic around that, but that's been a comfortable pace for us, with the number of new associates we need to add to the mix overall, and that time of year that those stores usually get opened. All-in, when we think about that, a 100 is a kind of a good pace. Yes, no problem, <UNK>. I guess, what I would say, is that yes, we have several urban, I guess, you'd call them stores in the fleet, and they do fine. As we're thinking about the future, I wouldn't say we've ever had a concerted urban strategy, right. So we don't have a lot of them. Our main strategy has been really in suburbs and in power centers, and lifestyle centers. We've talked about, we feel good about this 10,000 square foot store format, and the ability to hit at least 1,200, at least of that format. But when I reference that, we're also looking at what's the opportunity in smaller markets. And then also, what's the opportunity in places where the parcels of real estate would by definition be smaller. So whether it's urban centers or the downtown, maybe shopping area of high end suburbs, right. So we've got [two] with 2,500 ---+ two 5,000 square foot stores right now, that we're operating to learn about the dynamics of the different size box, and they're doing well. They're also learning a lot about the best way to operate that. And as we look at refreshing our view of store growth, urban is a question we're asking ourselves, and we'll look at. As you said obviously, the economics are different, but as we drive brand awareness across the country with our marketing efforts, we know that ---+ where will we go now. People know more about us than I think they would have in the past, right. So that's a good way or place to start. So more to come on that. Well, we're very happy with the loyalty program today, it's really a key asset for us. And it's a fair question, I mean, that's something that could be a good asset in the long run, right. Nothing to announce on that certainly, but it's certainly has a history in retail that's been successful for many retailers, no doubt. Okay, thank you. Thank you. I'd just like to close by thanking our 26,000 associates for an incredible start to the year, and I look forward to speaking with all of you again soon.

2016_ULTA

2016

FE

FE #Morning <UNK>. Absolutely. And I have said that in my prepared remarks. It's cash flow positive through 2018, and we haven't talked to you about beyond that. I'll let <UNK> answer the question in detail, but I think we're confident we can raise whatever we need in order to keep that business going, in terms of refinancing existing obligations. I do not see us leveraging that business more in order to keep it going. Well, I would say this. We are committed to telling you what this Company looks like once we have the Ohio case done. If the timing works out for us to do that at EEI, then we'll do it at EEI. If the timing doesn't work out for that, then we'll have a meeting that's specifically designed around telling you the outcome and what it does to our Company, whether it's an analyst meeting or how we it that, but yes, we're going to communicate that to you as transparently as we can. Well, I don't think you should think about the $500 million, I mean we told you we're going to issue $500 million of additional equity this year. <UNK> mentioned we have already invested over $3 billion in transmission growth capital with another $1 billion planned next year. You all look at those numbers the same as we do. I'm not going to speculate on an outcome in Ohio right now. When we know that outcome, we will know what the impact it has on our credit ratings, and then we will do what we need to do. We have got a number of other strategic objections that we can execute that we will, but I think it's premature to talk about what all of those could or could not be until we see where we land in Ohio. Good morning, <UNK>. Well, first of all, when we met with them earlier there week, they told us you guys all talk to them a whole lot more than we do, so I think it's pretty obvious out there what they expect us to get to, and in terms of how we're going to get there. I just said the Ohio ESP is a big piece of the puzzle that we have to get answered, before we can talk about what the next steps of the puzzle are. I think it's likely that both of the agencies are going to publicly say what their expectations are here in the near future, both for the competitive business, and for the rest of this Company, but we're focused on keeping our investment-grade credit ratings at the holding company, and for every one of our regulated entities. Hey <UNK>. This is <UNK>. I would think that the expectation is that we would need to achieve an FFO at 14% at this point. And they would not be looking to change that in the near-term. As <UNK> said, we ultimately intend to be a fully regulated company. We got to wait and see what comes out of Ohio, as <UNK> said. Good morning. Yes, we follow you. From our standpoint we're not expecting that we're going to issue any more senior unsecured debt. So I think the way we're looking at it, <UNK>, is we want to at least maintain where we're at right now, and our goal would be at the S&P level to gets the corporate credit rating ultimately notched up one that would also notch up our senior unsecured. From a Moody's standpoint, we are already at investment-grade. So that's the way we're thinking about it. Well, we just filed our rebuttal testimony, and attempted to point out what we thought some of the potential things that the staff missed in their testimony might be. I think some of those are pretty obvious, and even the commission staff in their testimony agreed that there were adjustments that were made, or need to be made to the initial number they came out with. So I am going to answer this question the way I've always answered. I'm not going to speculate about things that we don't know about. So we've got another couple of months to get through this case in Ohio. We've been waiting patiently for two years and three months to get to an outcome here, and with only a couple months left I'm not going to start guessing at what the outcome is. We're going to get the outcome, we're going to deal with that outcome, and we're going to move forward, and we're going to mover forwards in a way where we expect to maintain investment credit for our holding condition and all of our regulated entities. The 14% that's the threshold that Moody's has designed. From our standpoint, we're targeting at 14.5% to 15% of FFO. But that 14% is Moody's. That's correct. Yes. That gets us above the threshold that they have set, but again our target is 14.5% to 15%. I think it's an iterative question. We'll continue to do the employee benefit program and stock investment program, but as <UNK> said earlier, I think there's a big piece of the puzzle that still has to fall into place, before we have any further consideration there. As we have said this $500 million that we expect to issue, we expect to contribute that equity to our qualified pension plan. The units we shut down or said that we were going to deactivate by 2020 was just unit 1 at Bay Shore. The only unit we have, and it was Sammis 1 through 4 at Sammis. We have never disclosed what those would be from an earnings standpoint, but when you look at the total, including the capital that we would have to invest and the revenues net of their operating expenses, it will make us improve our cash flow going forward. That's essentially the reason we decided to deactivate those units. We have not baked July weather in the guidance. As I said in my comments on the script though, July was a very warm months and our plants ran very well. So I would expect that we will have some weather improvement in July. As far as the equity, we really can't comment on the timing of the equity transaction. However, I can tell you our earnings guidance is conservative, and assumes dilution starts in the earlier part of the second half of 2016. And we have planned normal weather for the rest of the second half of the year in our guidance numbers. <UNK>, this is <UNK>. From my standpoint I would say in all of our jurisdictions, we will be earning right in line with the authorized ROEs. As you know a few of the jurisdictions, they have what is called black box settlement, where they don't come out and say particularly exactly what it is. But with the filing we have in New Jersey, the four utilities in Pennsylvania, where we are in Ohio, that essentially covers all of our utilities, with the exception of Maryland and West Virginia, and we just had the filing in West Virginia a little over a year ago, and Maryland we're seeing some load growth there. So I would say we're earning right in line with all of our ROEs. If you look at New Jersey, the rate relief is associated with our capital investments we have made since mid-2012. We have had about $600-some million of investment there. So we're not earning on that capital right now. So I would say we're probably slightly underearning there. In 2016 we would expect that we would have a decision in Pennsylvania by January 27. So our guidance would include earnings that would get us pretty near to what our ROE expectations are. Morning. This is <UNK>. I would say we're not looking at any type of new legal actions or anything to ring fence that side of the house. The way you should look at it is, there's no cross defaults on any of the financings that we have out there, or the credit facilities. FirstEnergy Corp. does guarantee about $1.25 billion on that side of the house, and it's really made up of about $1.2 billion of our underfunded pension OPEB and EDCP costs, and then there's just about $50 million associated with contracts that FES has. So from my standpoint there's no thought about ring fencing, but that's just where we are with that side of the house. Well, I don't think that's something that we have been contemplating at this point. The business is still cash flow positive. We intend to make every effort to ensure that those assets continue to run. As <UNK> said earlier, if we get to a point we may look to deactivate or sell some assets, but I think that question is much further down the road. I was just speaking to what the guarantees are by the holding company. Yes. <UNK>, this is <UNK>. We have pulled back a little bit with where we're at with Sammis 1 through 4, we expect very little production out of those machines going forward. They'll still be available, but we see very little production coming out. So we have reduced kind of what we'll produce in the range of 70 to 75, and that's very dependent on what the forward market does. And then we have about 5 terawatt hours that we purchased through wind contracts, OVEC, that sort of thing. So we'll produce about 75 to 80 terawatt hours going forward. Good morning. This is <UNK>. So we previously filed the IRP. It showed a need for generation going out a couple years from now. But that case right now is concluded, so there is nothing that would, unless we were to file something, initiate something, that would come out of that case. So we would be looking as we go forward, and continue to monitor the forecast for that company, to see how we might want to present something consistent with the IRP, in terms of bringing additional generation to Mon Power. Correct. There's no time line associated with that. We would initiate it when we believe it to be an appropriate time. Yes. This is <UNK>. Most of the increase we had some benefits that flowed through in the second half of 2015 that reduced the tax rate down to 36%. We don't expect that going forward, so I would think that 38% would be a more normalized tax rate. That's right. Yes. I would say that's a representative number. As you know, we have about $6 billion of debt at the holding company, some of that is what I would say variable rate debt. So if you make an assumption that interest rates are going up, then you could see a change to that, but the biggest component is interest expense, and about several billion is subject to variable interest rates, so you could see a change in that if we had an upward movement in interest rates. Good morning, Ray. I'll take, there was three questions in there so I will take the first one and that is, I have already answered it a couple times here. We're not going to speculate about Ohio. There's a whole wide range of outcomes. The staff at one point of the corrections we made to the staff testimony got that number up over $500 million. I think we have got to let that process play out, see where we're at, and then we will take whatever steps we deem are appropriate to maintain our investment-grade credit for our holding company and our utilities. And those steps are so wide ranging depending on the outcome from Ohio, I don't think its good to speculate about them so I'm not going to talk about them. I'll tell you what we know when we know it. On the second question, I think <UNK> already answered it. We're not looking at doing anything to legally ring fence our generation business. But as I said we're not going to use any equity to support the credit ratings of that business. We're operating it in a fashion that's cash flow positive, and we're going to make whatever decisions that we need to make on a unit by unit basis, to deactivate them, sell them, in order to keep that business as positive of a member of the FirstEnergy team as we can. Ray, this is <UNK>. I'll take your final, the third question. Irene and her team they continue to have discussions with Fitch about potentially reinstating the ratings. So I think we're having very good dialogue with them, and we should be in a position to update you probably later this year. Okay. There aren't any more questions on the board, and we're running towards the end of our hour, so thank you all again. I know we had to make some very difficult decisions last week. We look forward to talking to you more about that part of our business when we see you all at EEI. And just thanks for all the support that you have given us.

2016_FE

2018

GFF

GFF #Thank you, Julia. Good morning, everyone. With me on the call is Ron <UNK>, our Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffon's businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various Securities and Exchange Commission filings. Finally, some of today's remarks will adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release. Also, please be reminded that with the prior announcement of Plastics sales transaction, Plastics is classified as a discontinued operation. Now I'll turn the call over to Ron. Good morning, and thanks for joining us today. Before discussing the quarter and the businesses, I'd like to take a moment to remember our Chairman, Harvey Blau, who passed away on January 19. With more than 50 years of service, including 25 as CEO of the company, Harvey was instrumental in building Griffon into the company that it is today. He was an extraordinary leader, a trusted friend and a mentor to the entire Griffon team. He will be greatly missed, and we're all committed to build on his legacy. Okay. Let's move to the quarter. I'm pleased to report we're off to a strong start to the year as we build on the transformative actions of fiscal 2017. At a consolidated level, our revenue increased 24% from the prior year, driven by both the acquisitions and organic growth in our Home & Building Products segment, which, as expected, was partially offset by reduced revenue in Telephonics. We continue to expect defense orders and revenue to improve throughout the year, particularly in the second half. This morning, I'd like to take a few minutes to walk you through updates to our key strategic actions, and then we'll provide comments on our segment performance and outlook before turning the call over to <UNK> for a closer look at the numbers. Beginning with our recent acquisition of ClosetMaid. I'm pleased that performance in our first quarter of ownership was in line with our expectations, generating $77 million in revenue in the quarter. We view ClosetMaid as an important growth platform for Griffon, and to that end, we're seeing good incremental demand through new customer relationships. In addition, under our management, we have begun implementing operational improvements and cost controls. We completed the post-closing purchase price adjustment process with Emerson, which resulted in a reduction in the ClosetMaid purchase price of approximately $14 million to $186 million and net of tax benefits to approximately $165 million. We expect to close on the sale of the Clopay Plastics business to Berry Global for $475 million in cash next week. We expect to pay cash taxes on the sale of Plastics of $60 million to $65 million due to the benefits of the tax reform bill. This is down from a range of $85 million to $90 million we announced in November. The divestiture of Plastics unlocks value for Griffon shareholders, and it positions us for growth. After the closing of the Plastics transaction, we expect to increasingly improve Griffon's operating margins and free cash flow generation. After the Plastics transaction closes, we will evaluate the use of proceeds to either invest in opportunities that diversify Griffon's portfolio of businesses, deleverage our balance sheet or return capital to Griffon shareholders. During the first quarter, we did not repurchase any shares. Since 2011, we've repurchased a total of $262 million worth of stock, approximately 1/3 of the capitalization, which was 20.4 million shares at an average of $12.81 per share. As of December 31, we held 49.9 million of repurchase availability under our board-authorized plan. We announced this morning a $0.07 per share dividend, which marks a 17% increase over the prior year first quarter dividend. Since its inception, our dividend program has grown at an annual compound rate of 23% per year. Next, I'd like to provide an update by segment before I turn it over to <UNK>, who'll take you through in a little more detail. Let's start with Home & Building Products. Sales increased 40% to $371 million from both the benefits of the recent acquisitions of ClosetMaid, Tuscan Path, La Hacienda, Hills and Harper, and organic growth. EBITDA improved 24% to $39.5 million, driven by the increase in revenue. We remain positive on the outlook for Home & Building Products as we continue to grow sales and improve our profitability through product innovation and category expansion, efficiency initiatives and bolt-on acquisitions. We continue to see underlying strength in the U.S. housing market with a slow but steady multiyear housing recovery, which we've discussed for some time. Our doors business is well positioned to capture increased new construction and remodeling activity, while rising homeownership rate supports our AMES tool business. Our recent acquisition of ClosetMaid nicely complements the Home & Building Products segment as we look to leverage the segment's combined strengths. Turning to Telephonics, our defense electronics business. Fiscal first quarter sales were $66 million as expected compared to the $88 million we had in the prior year quarter. Lower revenue was mostly related to timing of orders and work performed on certain programs compared to the prior year, particularly in our maritime surveillance radar and airborne intercommunication system programs. As a reminder, U.S. Department of Defense currently remains under sequestration while Congress continues to work on a budget that includes significant increases in military spending. The U.S. Navy ship fleet is expected to see increased funding, which supports a healthy outlook for Telephonics maritime surveillance radars. The international set of opportunities include a number of foreign military sales and direct commercial sales to existing customers in Telephonics' core defense electronics business areas. The additional areas of new business include building on Telephonics' incumbent market position in mobile border security systems, electronic warfare and commercial transit communication systems. Overall, Telephonics' new business pipeline of domestic and international opportunities looks strong, with backlog anticipated to grow in the second half of this year. Overall, this is an exciting time of transition for our company. We're pleased with the progress we've made on all of our strategic initiatives, and I'll let <UNK> take you through the numbers in a little more detail. Thank you, Ron. First quarter 2018 revenue increased 24% to $437 million compared to the prior year period of $352 million. Increased revenue in the quarter was driven by strong performance in our Home & Building Products segment, with both acquisition and organic growth contributing to the increase and partially offset by lower Telephonics revenue. First quarter 2018 segment adjusted EBITDA from continuing operations was $43.7 million, an increase of 9% over the prior year period. Moving to our segment results. Home & Building Products first quarter revenue increased 40% to $371 million. AMES revenue increased 16% to $140 million compared to the prior year period of $121 million. The increase was driven by acquisition-related revenue from our Tuscan Path, La Hacienda, Hills and Harper Brush Works acquisitions, and increased Canadian snow tools and pot and planter sales. In our doors business, first quarter revenue increased 8% to $154 million. The doors business benefited from favorable mix and pricing. In our ClosetMaid business, first quarter revenue was in line with our expectations. We continue to expect $300 million of revenue from ClosetMaid in 2018. Home & Building Products first quarter segment adjusted EBITDA increased 24% to $39.5 million compared to $31.8 million in the prior year period, driven by the increased revenue and continued operational efficiency improvements. Turning to Telephonics. As expected, first quarter segment revenue decreased to $66 million compared to $88 million in the first quarter '17 due to lower maritime surveillance radar and airborne intercommunication systems revenue. Segment adjusted EBITDA of $4.2 million decreased compared to the prior year period of $8.1 million. At December 31, 2017, backlog was $332 million compared to $351 million at September 30, 2017. We continue to expect backlog to increase in the second half of the year. Moving back to our consolidated results. Gross profit for the quarter was $120.8 million compared to the prior year level of $96.7 million. Gross margin, excluding $1.5 million acquisition inventory amortization impact in the first quarter, increased 50 basis points to 28%. First quarter selling, general and administrative expenses, excluding items that affect comparability, were $101.5 million or 23.2% of sales compared to the prior year period of $78.9 million or 22.4% of sales. In the quarter ended December 31, 2017, the company recognized a tax benefit of $24.9 million on a loss before taxes on continuing operations of $2.1 million compared to a tax benefit of $2.6 million on income before taxes from continuing operations of $4.4 million in the comparable prior year quarter. The quarters ended December 31, 2017 and 2016 tax rates included certain net tax benefits of $23.1 million and $4.4 million, respectively. The current year quarter tax benefits included a $24 million benefit from the revaluation of net deferred tax liability resulting from the December 22, 2017, enactment of the tax reform bill. Excluding these tax items and the tax effect on other items that affect comparability, the normalized effective tax rates for the quarters ended December 31, '17 and '16 were 35.4% and 40.8%, respectively. Regarding U.S. tax reform. The U.S. government enacted the comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act. This act reduces the federal corporation tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime. As Griffon has a September 30 fiscal year-end, the lower tax rate will be phased in, resulting in a U.S. statutory federal rate of 24.5% for fiscal year ending September 30, 2018. Subsequent fiscal years will reflect a 21% federal tax rate. Griffon will continue to assess the impact of the tax reform through the balance of fiscal 2018. First quarter income from continuing operations was $22.8 million or $0.53 per diluted share compared to the prior year period of $7 million or $0.17 per share. Excluding certain tax items and other items that affect comparability from both periods, current quarter income from continuing operations was $2.4 million or $0.06 per share, both of which are in line with the prior year adjusted results. Moving over to our balance sheet. First quarter capital spending was $10.8 million compared to the prior year level of $7.7 million. For fiscal '18, we expect capital spending to be approximately $45 million. Depreciation and amortization in the first quarter of 2018 was $13 million. As of December 31, 2017, we had $84 million in cash and total debt outstanding of $1.25 billion, resulting in a net debt position of $1.17 billion. This is before the proceeds from the Plastics divestiture. We had $170 million available for borrowing under our revolving credit facility, subject to certain loan covenants. Regarding EBITDA. We continue to expect 2018 segment adjusted EBITDA of $205 million. In providing this guidance, we are mindful of the risks and impacts of weather to AMES, the health of the housing market on Home & Building Products, the U.S. Department of Defense budget on Telephonics, and foreign exchange and commodity costs on Home & Building Products. I'll now turn the call back over to Ron for his closing comments. Thanks. We're off to a good start in fiscal 2018, and we're well positioned to benefit from an improving economy and an improving housing market. We believe that our ongoing efficiency initiatives will enhance our operating margins and the expected increase in U.S. defense and infrastructure spending will drive incremental growth and profitability, cash flow generation and, ultimately, shareholder value. There's much for us to be excited about. And with the dedication and commitment of our employees around the world, we're ---+ we'll continue to build on our success. With that, operator, we'll open it up for questions. I wanted to start with ClosetMaid. Obviously, as you said, sales are off to a good start. Could you talk ---+ could you just expand a little bit about the operations now that you've had your kind of first look inside and operating it. I think, originally you said margins will likely come in a little lower than the HBP average but over time you have the opportunity to grow them. How do you feel about the operations now that you've seen them. And just expand on your outlook for that, please. Very pleased with all of our initial impressions of the business. Believe that it creates both revenue opportunities as well as cost reductions across. So while we've said that we expected margins in the first year of ownership to be better than 8% at the ClosetMaid level, and I think we had said about approximately $300 million in revenue and that we expected $25 million of ---+ at the EBITDA level, we believe that this is a better than 10% EBITDA margin business and ultimately a 10% EBIT business over a period of years. So point being that our blended Home & Building Products segment, we fully expect to be a better than 12% EBITDA margin business over the coming years. Okay, great. And then on Telephonics, obviously, you've said that you expect the backlog to pick up in the back half of this year. Can you just talk about the visibility there for the back ---+ for the pickup. And then other things that maybe are potential drivers that aren't in backlog. And latest on border patrol or military spending and how it could impact you. And just the outlook there over a 2-, 3-year period, please. Yes. I'll remind you. Telephonics has been part of this company for over 50 years, so we've seen more than a few cycles in defense. The current cycle that we're in is entirely an issue related to fiscal policy coming out of the U.S. government and the transition of building up our military. It has been something that we've been talking about under the current administration. But you have to go back to we've been operating under sequestration for over 5 years, and the amount of capital that's getting put into purchase of equipment is still constrained. We believe that Telephonics is going to be a beneficiary when the budgetary spigot ultimately flows into the broader defense industry. In order to build these ships, it takes a number of years. To build the helicopters that go on them and then to put the radars on the helicopters that go on the ships is measured over a 5-year cycle. We see Telephonics as being at the bottom of the revenue cycle backlog decline that we've seen, we believe improves quarter-over-quarter and year-over-year. The outlook that we have on some of the other programs, custom and border patrol, where we believe we are part of the solution for border security in terms of providing electronic mobile surveillance. But again, that's caught up in a much larger political debate and funding issue. If and when money flows, we believe we're going to be a beneficiary of it. So the outlook for us, both domestically, is strong. And more importantly, near term, the foreign sales, which have been in process for us over a number of years seem to be coming to the point where we expect, particularly in our third and fourth quarter of this year, to see backlog improvement. Great. Very helpful. And then you mentioned, obviously, earlier on the call, you're expecting to receive the proceeds from the Plastics sale and you'll have over $400 million in cash. You touched on it, but I was hoping you could expand a little bit about the opportunities with that balance sheet. We've seen a number of consumer companies divesting assets recently. So can you talk about if you're looking for complementary assets or if you're looking for a third leg and what the current thought process is on redeploying that capital that's about to come in. We're very busy working on acquisitions big and small. The timing of them are always unpredictable. We clearly are looking to grow Griffon by redeploying the capital that we're going to receive into higher growth, higher value-creating opportunities. So we're really excited about the platform of our own businesses. We see complementary tuck-in acquisitions to continue around Home & Building Products. And as you referenced, there's some really interesting assets that are likely to be coming up in the market over the next year. We think we're very well positioned to compete for them. And our value added is capital. And you've heard me say this, there's a tidal wave of capital-chasing assets out there. What we bring to the table in addition to capital is our ability to operate businesses and improve them. So we're perfectly happy to find something that is big, actionable and, for us, to be able to grow Griffon either within the businesses that we're already in or find an entirely new leg to add to the stool. Sure. There is, as part of acquisition accounting, a gross-up of inventory as part of the rules. And then that turns as the first inventory turns occur after an acquisition. That impact was $1.5 million and went through our cost of sales in the quarter. So I removed that $1.5 million in calculating the gross margin. There was not. Correct. It was about $148 million. Okay. Thank you.

2018_GFF

2016

GE

GE #Yes. On the capital allocation question, we're not changing any way in terms of how we're thinking about the trade between M&A and buyback. Certainly with the stock at $28 or $29, the buyback looks quite attractive to us. We're not short ideas on M&A, I don't think. We're constantly evaluating M&A opportunities. I think just what we've announced recently here between SLM and Arcam, which is an investment that's going to have a huge payback longer-term, and most recently the LM acquisition, we are continuing to evaluate M&A opportunity. So I wouldn't read through as we're short ideas on M&A. We're just, I think ---+ we'd like to be more aggressive around the stock given the outperformance by GE Capital in terms of what they are returning to us and operationally what we're able to do through our capital allocation model that was unrelated to M&A and leverage. So, <UNK> do you want to ---+. I would just say, <UNK>, I think Avio is the right way to think about LM. We see good opportunities in the supply chain. We think the next few years the visibility we have on wind is pretty solid in terms of PTC and global demand. We think between us and LM we've got good technology that can really innovate in the industry. And what we saw on Avio is we were able to keep the non-GE base in Avio, and we think we can do the same thing with LM. Lastly, your question ---+ it really bolsters us in China and India and a lot of the emerging markets where we see growth potential for us in the future. So we look at it as a reasonably low-risk investment where a lot of the levers are in our control and we have, I think, a disproportionate upside if we execute well. Okay, so first on buyback. Let me be absolutely clear. The $4 billion buyback is an increase of the model we gave you that went through 2018. We're buying $4 billion more stock than we said we would when we gave you the plan through 2018. On SG&A: in the third quarter, structural SG&A was up 1%. That was 12.6% of sales. Third-quarter year-to-date we're actually down 4%, about 13% of sales. It was a bit of a drag in the quarter, partly because SG&A was up 1% and volume was essentially down slightly on a calculation basis. So it ended up being about a 10 basis point drag in the quarter. Other inflation that sits in the Other line is associated with inflation on base cost, and most of that is EOP. There's other indirect expenses that also incur inflation, and that's what you see on that line. Other inflation ex-FX, if you take out the impact of FX ---+ so some of those marks go through the Other line in that walk ---+ was a negative 60 basis points as opposed to what we showed you in the walk. Okay. A couple quick announcements, <UNK>, before you wrap up. The replay of today's call will be available this afternoon on our Investor website. We will be holding the Minds + Machines conference out in San Francisco on November 15 and our annual outlook meeting on December 14. We'll be holding our fourth-quarter earnings call on January 20. <UNK>. Great, <UNK>; thanks. Just a couple points to wrap up. I think we plan to have a solid Q4 and wrap up a really solid 2016. Looking forward, I think we're being realistic about the environment in the resource sector and Oil & Gas. But don't be mistaken; we still think this is a core GE business and one where our team is managing it extremely well through the cycle. The rest of GE is executing very well. Alstom remains on track in 2017 and 2018. The buyback is ahead of plan. We've got a really good line of sight to incrementally take more cost out of the Company and be even more efficient. And all of our compensation plans, whether it's the long-term incentive plan or the AIP, which is in our IC plan, all tied to the bridge that we showed you in 2015 and where we march in 2016, 2017, 2018. So we're aligned with investors, <UNK>, and I think we are quite confident in the performance of the Company. Great. Thank you for joining.

2016_GE

2015

UVE

UVE #Hello and welcome to the third-quarter 2015 earnings presentation for Universal Insurance Holdings Inc. I am <UNK> <UNK>, Chief Financial Officer. Making the presentation with me today are <UNK> <UNK>, Chairman, President and Chief Executive Officer, and <UNK> <UNK>, a Director, Executive Vice President and Chief Operating Officer. Earlier today we filed our Form 10-Q with the Securities and Exchange Commission and issued our earnings release. To find copies of these, documents please visit the financial information and press releases sections of our website at www.universalinsuranceholdings.com. Our SEC filings can also be found on the SEC's website. In addition, an audio recording of this presentation will be available on the home page of our website until November 27, 2015. Before we begin, please note that this presentation may contain forward-looking statements about our business and financial results. Forward-looking statements reflect our current views regarding future events and are typically associated with the use of words such as believe, expect, anticipate and similar expressions. We caution those listening including investors, not to rely on forward-looking statements as they imply risks and uncertainties, some of which cannot be predicted or quantified and future results could differ materially from our expectations. We encourage you to carefully consider the risks described in our SEC filings with the SEC which are available on the SEC's website or the SEC filings section of our website. We do not undertake any obligation to update or correct any forward-looking statements. With that said, I would like to turn the presentation over to <UNK> <UNK>. Thank you, <UNK>. As usual I would like to provide some highlights from our quarter. <UNK> will then discuss our operational highlights and then <UNK> will conclude by discussing our financial results. I am very pleased to report another positive quarter for Universal Insurance Holdings as we delivered the highest quarterly net income for the third consecutive quarter. Our results reflect the strong operational and financial momentum we have built across our platform as we continue to successfully execute on our strategy to drive profitable organic growth, provide high quality rate adequate business and expand our geographic footprint. For the third quarter, we delivered improvements across multiple financial measures with our strong bottom-line results continuing to benefit from the elimination of our quota share agreement and continued topline growth. Our continued geographic expansion outside of Florida has led to an increase in policy count of 35.6% through the first nine months of the year. In short, we are building a more broadly diversified portfolio of business and doing so on an entirely organic platform. As a result of our continued strong performance, solid financial position and confident outlook, in September our Board authorized a new $10 million share repurchase program. As of the end of the third quarter, we had repurchased 100,000 shares at an average price of $25.84 with the $7.4 million remaining to be deployed. This share repurchase coupled with our quarterly dividend payments highlight our continuing track record of deploying capital prudently. As we look ahead, we remain focused on executing on our key priorities and maintaining our operational initiatives. We will continue to seek opportunities to drive organic rate adequate business from our growing distribution channels and continue our geographic expansion efforts. With that, let me turn it over to <UNK>. Thank you, <UNK>. I would like to comment further on two items you mentioned briefly, the elimination of the quota share agreement and continued topline growth. First, regarding the elimination of the quota share agreement, we are as stated previously now retaining 100% of our business. Third-quarter 2015 represents the first opportunity to report results that fully reflect the impact of this change. It continues to be important to reiterate that this change results in quality true organic growth by retaining a greater percentage of policies that we already have on our books. This business has been underwritten by our staff and in most cases these policies have been with us for many years. By eliminating the quota share, we are simply assuming more of a well-known commodity. Lastly, regarding continued topline growth, as <UNK> mentioned, our policy count outside of Florida has increased by over 35% through the first nine months of 2015. To expand a little, the strong growth outside of Florida continues to diversify our spread of business as we again this quarter realize policy count and premium growth in each and every one of our active states. In addition to growth outside of Florida, we have also realized topline growth in Florida as well with policy count increasing by 7.6% through the first nine months of 2015. It is also probably worth mentioning that all of this topline growth continues to be produced one policy at a time through our independent agent partners. With that, I will now turn the discussion over to <UNK> <UNK> for our financial highlights. Thank you, <UNK>. I would like to provide a little more detail around the financial results for the quarter, their drivers and briefly touch upon the results for the first nine months which ended September 30, 2015. Net income for the quarter 2015 totaled $30.3 million which is an increase of 42% compared to $21.3 million in 2014, which is the result of our efforts to build a higher quality and more rate adequate portfolio of policies, organic growth and favorable changes in the structure of our reinsurance programs including the reduction and ultimate elimination of quota share reinsurance. Diluted EPS for the third quarter was $0.84 which is up $0.23, a 37.7% increase from the same quarter in 2014. This reflects the increase in net income which was partially offset by an increase in weighted average diluted shares outstanding. An increase in net earned premiums of $51.9 million or 55% for the third quarter compared to the same period in 2014 is due to both an increase in direct earned premiums of $18.5 million and a decrease in ceded earned premiums of $33.3 million. The increase in direct earned premiums is due primarily to an increase in the number of policies written during the third quarter of 2015 compared to 2014. The elimination of quota share reinsurance contracts was the driver behind the decrease in ceded earned premiums. Net investment income increased by $663,000 or 103% for the third quarter of 2015 to $1.3 million. This reflects an increase in our investments and actions taken to rebalance our portfolio to increase yield. Commission revenue of $4.1 million for the quarter was up by $992,000 or 31.8% as a result of overall changes in the structure of our reinsurance programs including the amount of premiums paid for reinsurance and the types of reinsurance contracts used in each program. Policy fees of $3.8 million for the quarter were up $404,000 or 11.8% as a result of the increase in policy count. Losses and loss adjustment expenses of $53.9 million for the quarter were $19.7 million or 57.6% higher than the third quarter of 2014 which was primarily the result of the elimination of our quota share reinsurance contracts. Our losses and loss adjustment expense ratios did not change significantly for the three months ended September 30, 2015 compared to the same quarter in 2014. Although there wasn't a significant change in our loss ratios, the ratios for both periods have improved from historical ratios. This improvement reflects changes made to expedite claims resulting in a reduction in both losses and the loss adjustment expenses. In addition, our acquisition of Aplin Peer & Associates has produced increased efficiency while reducing costs associated with third-party adjusting services. The net ratios have also benefited from lower reinsurance costs relative to growth in premiums. General and administrative expenses were $55.3 million for the third quarter of 2015 compared to $32.2 million for the same quarter in 2014. The majority of the increase of $23.1 million or 71.9% is due to $19.4 million of additional amortization of net deferred acquisition costs resulting mostly from the elimination of quota share reinsurance effective June 1, 2015. There were also increases in stock-based compensation of $1.4 million which reflected an appreciation in the market price of our common shares and performance bonus accruals of $0.9 million resulting from the increase in income before income taxes. The effective income tax rate decreased 36.7% for the third quarter of 2015 from 42.6% for the same quarter in 2014. This decrease reflects a reduction in the amount of nondeductible executive compensation, a discrete adjustment recorded based on the completion of our 2014 state income tax returns during the third quarter of 2015, and changes to the current state effective income tax rate. Now let me turn briefly to our year-to-date results for 2015. Net income increased by $25.3 million or 48.7% for the first nine months of 2015 compared to the same period in 2014. This reflects an increase in net earned premiums, net investment income and policy fees which were partially offset by decreases in commission revenue, net realized gains on investments and other revenues and increases in operating expenses. Stockholders equity reached an all-time high of $283 million as of September 30, 2015 compared to pro forma stockholders equity of $218.9 million as of December 31, 2014. In closing, we believe our results for the quarter and strength of our balance sheet reflects the strategic and operational initiatives we have made to improve our long-term financial position. Now I will turn it back to <UNK> for his closing comments. Thank you, <UNK>. Our continued topline growth and overall Company improvements would not be possible without the hard work and dedication of our peer-leading agency force across the country and our tremendous employees. I would like to personally thank all of them as well as our Board of Directors and my management team. Thank you.

2015_UVE

2016

WAT

WAT #Sure, thanks <UNK>. Let me make a couple comments, and then <UNK> can provide some additional data points. You're right, we did get SG&A leverage. That's a combination of I would say three factors. Certainly, the little bit of revenue weakness lowers some of the sales-type spending. Very strong operating discipline. This team, as you know, has a history of disciplined operating management. We obviously have the ability to manage expenses tightly while still making sure we're doing the right things for growth. We got a little bit of FX benefit, as well. I guess it's important to say as well, SG&A will be an area that we continue to look for operating leverage over time, especially in the interest of maintaining or even enhancing our investment in R&D. I've said before that as long as we can cover it and still get operating leverage in the P&L, and as long as I'm convinced that there is good R&D productivity, I'm even interested in increasing our commitment to innovation. Being the most vital organic grower and innovator in the industry is an important strategy of ours. I am very pleased that we are able to get operating leverage, primarily through the SG&A line, and at the same time increasing our focus on innovation and fueling the new product pipelines. I think there is a good balance in the P&L right now. I think many of those factors are indeed sustainable, and we want to obviously have that type of a philosophy going forward. I will let <UNK> comment a little more specifically on the puts and takes in the gross margin. Sure. Thank you very much, Chris, and hi, <UNK>. Looking at the gross margin, in every quarter there are pushes and pulls. You are right that we did get some FX benefit in the gross margin line, primarily from the Japanese yen, and yes, some benefit from the British pound. Offsetting that was some dynamics in terms of product mix and geographical mix of the business. Historically, TA has been a very high gross margin business for us. It was a little bit weaker in the quarter, so that was one of the factors that influenced gross margin. We had a very strong quarter in the area of service, which is a little bit dilutive to the gross margin, but it's nicely accretive to the operating margin. There's been a lot of focus on devaluation of the British pound post the Brexit vote. I just wanted to comment that we didn't really see the full effect of the pound's current value in these third-quarter results, as the pound weakened throughout the quarter. The average rate of the pound wasn't quite as favorable as it is today. Where we see it most dramatically is in our R&D expense. I think we had talked about there being about a 9 percentage point difference between the constant currency R&D growth and the actual reported R&D growth. Those are some of the factors where currency affected our P&L in the quarter. Yes, thanks, <UNK>. Let me try to add some value on that comment that you're making. I think overall I want to reiterate that we ---+ I think the approach we're taking on this in these markets in really separating some of those growth drivers I talked about, which are really doing so well ---+ pharma, China, recurring revenues ---+ and we continue to focus on those. In the areas that you mention, I think we're being quite balanced, actually, and cautious and conservative. I don't think we have a feeling that there's some major cyclical trend that we are heading into. I think we see the normal back-and-forth of some of these markets, particularly at the later point of the year. I don't have any evidence that political uncertainty is causing any abnormal issues here. Certainly from a Brexit standpoint, our business in the UK and in Europe has actually been pretty steady. In the Europe context, while the overall number looked a little bit lower, you really have to separate western Europe from eastern Europe and the Middle East. The western Europe part of that business, as I mentioned, is quite stable, and even the UK itself. Same comment on the US political environment. We don't really see any linkage to the current election cycle to behaviors or attitudes in terms of the end customers. We do have more visibility to certain of those sub-sectors, say particularly in the academic world where we give a longer view into the pipeline. As I mentioned before without trying to quantify it, we see enough evidence in the trialing and the quoting and the ordering to say that hopefully we will have some opportunities to improve on what we did last quarter coming up here. Again, a conservative and a pragmatic approach in terms of the outlook in those markets, but truly looking for an opportunity to do better. Yes, terrific question, <UNK>. That's exactly the right question, is probably the question I spend most of my time thinking about. Embrace your core business, love your core business, and try to understand it at a deeper level. Clearly, this question of cycles in pharmaceutical and staying power of demand, as you say, is exactly the point. My perspective, and I welcome <UNK>'s more longer historical perspective as well, but my perspective is the pharma market we see today and that we expect to see feels like a very steadily changing and different type of market than historical ---+ potentially with less cyclicality, more balance geographically, more balance from an end customer standpoint. I used the word earlier, renaissance in medical research, but I think that term also applies to the drug development process. We're seeing less and less dependence on the biggest customers, less and less dependence on traditional, large, integrated biopharmaceutical companies, more and more growth and innovation in the specialty area, the biotech area. Obviously on one end of the spectrum a real growth in the generic category, driven by rising patient access to medical therapies around the world; but on the other end an increasing drive for innovation and increasing complexity of molecules that are under development, and frankly, that have more challenging characterization requirements. I'm personally spending a ton of my time with customers still, and many of these factors are reinforced. We're excited about what's happening in the pharma world in all of those vectors, and we'll continue to try to quantify that and really lean into that, so we're really maximizing our performance in our core business, which is our strategic goal number one. Yes, first of all, as it relates to large pharma, I would say we continue to see steady performance out of large pharma. It's not our fastest-growing segment, but it's there. It comes in and out a little bit quarter to quarter, but we're certainly not declining in that segment. Actually, I think large pharma is doing pretty well right now as a sector and an end market. But really a lot of the growth, as you point out, is coming from specialty and biotech and so forth. I've spent a lot of time studying this this year. I think the Company made a bet five or seven or eight years ago, something in that time frame, to really develop more application support for the biotech world. We've used a couple of examples of that in terms of some of the consumables and kits; but also the workflows around the mass spec product line. I think what we're seeing is we've seen a steady increase in market share in the large molecule segment. The large molecule segment is growing faster than the small molecule segment in general for the future. It's a very different market. That's what we're trying to do is really unstack the stack, and understand it with more granularity what the demands are in each of these sub-sets. I think our biotech offering ---+ and you see this reflected in our current products, but also as we share more of our product pipeline for the future, continued strong emphasis on this biotech sector. Japan is mixed, as we commented. The pharma sector in Japan is solid right now. Like I said, the pharma sector around the world has been pretty balanced, and that's true in Japan. In Japan, where we've been through a little bit of a cycle and saw it again this quarter with less spending on the government side and declines ---+ some pretty good-sized declines in that sector as the government has prioritized other national vestments in the wake of some of the unfortunate disasters there. There's some infrastructure rebuilding that has what we believe temporarily moved money away from some of the research ---+ government-type research business; but <UNK> may want to comment more on that. No. I think that's very accurate. As Chris mentioned, the pharmaceutical spend in Japan continues to be robust. The other thing that we're seeing is that is a country that is very receptive to new technologies. The up-take of some of TA's new discovery products is something that we are very optimistic on as we look at the industrial opportunity in Japan. I'm sorry, can you repeat the last part of that ---+ an opportunity to what to our investments. I don't think that's necessarily fair to say. We're right in the middle of our budgeting cycle. I think like history, we've implied all the way along here we're going to be prudent and cautious. It's our goal to sustain very attractive top-line growth and to deliver some modest operating leverage while continuing to invest in R&D and our sales force. I don't think ---+ I don't anticipate any sort of a step-change spending increase program. We're going to continue to be very disciplined about how we deploy our capital internally. That's a good question, <UNK>. I would say I'm still learning about the competitive landscape relative to product cycles and what they're trying to do, but frankly, I'm 100% focused on what we're trying to do and making sure we're doing the right thing for Waters. I don't know that I have a perfectly clairvoyant vision on your question. I look at what we're doing in product development, and take the last four or five big products we've done, like the Acquity A mass detector, the Acquity Arc, a couple of really great new entrants in mass spec category with Vion and then Xevo TQ-XS in the quantification area, then the stuff on the TA side. I like the way these products are shaping up for the priority segments, these particular products that we're newer in the market with. Keep in mind, product launches in this sector continue to impress me as things that really deepen and build and scale more steadily over time, rather than being quick hits. You think about the key priorities around our core business in small molecules, and technologies like the Arc, and the advantages that gives us in a more flexible approach to methods in geographies like China. You look at the biotech development phase in the food safety area and some other things, and the strength we have in the tandem quadrupole area. I think some of the products that we're emphasizing right now in our portfolio are very much at the core of the most important friends trends that we're trying to drive in the market place. We'll over time give you a little more visibility into the pipeline for the future, but I've had an opportunity to spend a lot of time thinking about our portfolio and working with our engineering teams to make sure that what is coming next continues to build on this momentum. In the chemical space. I don't know. I think that's a fair question. Obviously you have Dow, Dupont out there. Those have been good customers for us. I haven't seen any evidence that there's some discontinuity in terms of demand from those types of customers. I think the industrial backdrop that we have been talking about on this call is something that many people have seen. It's across sectors. We're trying to be very clear-eyed about it, and certainly not panicking, and being conservative and cautious, like I said; but looking for opportunities and making sure we're poised to seize those opportunities. What happens when you're in a cycle like this is that pent-up demand builds. We're looking for opportunities to get some big wins in that regard. Thanks, <UNK>. I'm glad you raised India. We do tend to talk to China a lot as a huge market and high-performing market, but India has been in the same category. I very much think about India a lot, and work with the team there. Our growth there has been in recent quarters and years really solid in the mid-teens. I think that reflects a couple of different things. Number one, it reflects the vibrancy of the generics market in terms of both the Indian companies and the multinational companies that are operating there developing generic pharmaceuticals, producing generic pharmaceuticals for the world. As you allude to in your question, the regulatory requirements from the FDA and other notified bodies and regulators around the world has been increasing. We've done particularly well in that market, and believe we've built our market share position, and actually have quite a high market share position in India based on our competitive advantage in chromatography data systems, i. e. Empower. It's a huge competitive advantage for us. It's one we continue to build upon. We're building a stronger and stronger foundation of loyalty in that market. The other point about India that I find interesting is not only is India an interesting market from a multinational standpoint and an export standpoint, but it's going to become over time a vibrant domestic market, as well. The strength of our franchise there over time, the strength of our relationships and our team sets us up well for other new waves of growth in India. India is a huge priority. It's challenging to be our third-largest country in the world after the US and China, and will continue to be one of our top priorities. We are pretty well balanced between development and production ---+ more 50-50 between R&D and then the QC-QA side. The QA-QC side, as you know, has more oriented towards recurring revenue and the service and the consumables, whereas the R&D side a little more oriented towards capital. We have traditionally been strongest in late-stage development and then QA-QC. Certainly, as based on the earlier conversation we had on the changing nature of pharma, as there's been more activity in development in recent years from more sectors, particularly specialty and biotech, that's been an area of strength for us. But we also have opportunities. We can do better in earlier-stage development and even in the research side. We're excited about some things we're working on to augment the strength we have on late-stage development in QC into earlier-stage development in research. We want to continue to improve on all areas. I don't know that there's been any drastic changes in mix. I don't think so, in terms of our overall business composition between those areas. But like anything, there's areas we do particularly well, and areas we can improve. Yes. That's a fair question, <UNK>. We don't want to quantify all the different growth rates by sub-segment, but just in a broad sense, about 15% of our worldwide business overall for the corporation is government and academic. To your point, it is a smaller mix. Within the US, the pure academic sector may be around 10%. It ebbs and it flows a little bit. Government adds to that. You can see how a decline in these segments affects the overall result. Like I said, we're taking a balanced view on one hand. We're not happy with the decline, and we want to do better, and we believe we will do better, but on the other hand keeping it in perspective, and keep our number one focus on the core business and the sectors like pharma, like food and others that are giving us a lot of growth right now. Affecting the overall geography wasn't just as simple as pharma and then academic. There's a lot of other sectors within industrial, too, that as we pointed out, have had more moderate growth, particularly in the industrial side ---+ the chemical, materials, polymer ---+ the environmental-type end markets. Yes, <UNK>. I just wanted to mention, as a follow-up to Chris's comments on the US, that in this particular quarter we were comparing against a mid-teens growth in the prior-year quarter. Please bear that in mind as you think about the particular growth rates in the US in the third quarter. Thinking about the yen, as we mentioned, we had a slight decline in Japan on constant currency; but we had a double-digit growth rate at actual because of the appreciation of the yen. Japan has been, and continues to be a high-single-digit percentage of the corporation's business. Good, I think we're coming closer to the top of the hour, but we have time for one or two more questions. Maybe a couple more. Does that answer your question, <UNK>. Probably too small. It's a good question, but probably a little too small. Once we start breaking our own numbers down in that level of granularity, there's too many exogenous factors to draw good conclusions. But yes, we did see a slightly moderating pattern there. Keep in mind, earlier in the year in a number of categories that continue to do well, we constantly out of conservatism, expect some degree of moderation. That's what as <UNK> said for the fourth quarter even our best growth drivers. We're really ---+ these particular product lines or service lines, if you will, in the recurring revenues are really a core part of our story and our competitive strength, and the robustness of our ongoing business models. I think we're pleased overall with where that's at. Let me start on that. I think that if the pound stays where it is today, <UNK>, we will get more of a full impact in the fourth quarter. As I mentioned earlier, the pound devalued within the third quarter. To your point, some of the positive effects of the pound on cost of goods sold are going to be dependent on just the product mix, and whether or not we sell the higher volumes of high-resolution mass spectrometry systems which are manufactured at our UK operation. I have to say that as a higher-ticket items those tend to be lumped a little bit more toward the closing months of the year. Chris had already mentioned about some orders migrating from the third quarter into the fourth quarter on the academic spend. That was mostly represented in our higher-end mass spectrometry space. Looking at next year, some things to consider is that we have had historically between 10% and 15% of cost of goods sold as pound denominated, and probably more significantly about 1/3 of our R&D expenses is denominated in sterling. Those are some of the opportunities that we have, maybe as we begin to look out into upcoming quarters to get a little bit more favorable impact in our P&L. Good. I think we have time for one more, please. Why don't I start out on the FX side, and then I will leave it to Chris to finish up on the second part of your question. Yes, we had ---+ we are enjoying a little more favorability in FX during the fourth quarter this year than we had originally anticipated. To quantify it, it's about $0.05 more benefit across that period more than we had originally anticipated. You're looking at $0.02 or $0.03 a quarter associated with total currency benefits in the third and fourth quarter. <UNK>, quickly on your geographic questions to finish up. Those are good questions to finish up. Maybe I'll start with the UK and finish with China. We've seen very steady market conditions in the UK. Our UK business is roughly 4% or 5% of our global turnover, so it's one of our bigger countries. It's also one that's quite balanced. There's a strong pharmaceutical sector there, of course, and also a strong government and academic sector in the UK, as well. That market's an important market for us. We've seen steady performance, and in the near term don't see any impacts of Brexit. We are paying very close attention to Brexit. In fact, I've dialed up my participation in the UK and been there a number of times, including to key thought leaders in government and other sectors, to really advocate for the types of policies that will continue to promote the life science industry in the UK. The ecosystem of the life science industry in the UK is very critical to us, to Europe, and to the world. I'm actually, despite all the uncertainty, confident that everybody understands that, and will keep the interest of that industry in mind as the negotiation gets under way. Again, much of that's out of our control, but to the extent we have a voice in what some of those policies are, we are going to be active in that process. From the standpoint of China, again we don't want to get too specific, other than to say we're operating at a high level in China right now. I think that's a function of two or three things. First of all, it's a strong overall economic backdrop relative to the priorities of the government. We are between year one and year two of the 13th five-year plan. We've studied that very deeply, and very well aware as to what the government is trying to do, particularly around advancing and incubating the local pharmaceutical sector and rising quality standards there and rising data standards there, as well as in the food industry and the area of traditional Chinese medicine. Those are three of our big priorities. We're seeing a lot of balance across those right now. We're seeing the rapid adoption of some of our newer technologies like the Acquity Arc that really allow many of these sectors to get up to speed quickly, but also advance to more innovative up-to-date methods. It's a pretty robust market. I think one of the reasons we're having success there is we've got a very strong team. We have been in China for a long time. We're coming up on nearly 500 employees in China. We have a huge commitment there. We're very active with a number of the key opinion leaders and academic centers there. I'm actually heading back over to China in a few weeks to dig even deeper, because we think that what's happening there is very positive for our industry, for our business. It's at the very top of our list. Thanks for that question, and let me also now just move to conclude the call. As we move into the fourth quarter of 2016 and begin to focus on 2017, we are very encouraged by our year-to-date performance. The strength of our key growth drivers has enabled us to deliver double-digit earnings-per-share growth for the first three quarters of the year. On behalf of our entire Management team, I would like to thank you for your continued support and interest in Waters. We look forward to updating you on our progress during our Q4 2016 call, which we currently anticipate holding on January 24, 2017. With that I thank you, and wish you a wonderful day. Bye.

2016_WAT

2017

NSC

NSC #Thank you, Jim, and good morning everyone Our third quarter 2017 revenue growth in all three business units reflects the strength and sustainability of our strategic plan Total revenue for the quarter was up 6% versus 2016 driven by a combination of volume gains in intermodal, coal and steel and increased pricing Merchandise volume was down slightly in the third quarter as gains in steel, sand and fertilizers were more than offset by lower automotive shipments associated with U.S vehicle production declines and reduced crude oil shipments Overall merchandise revenue was up 3% this quarter as negotiated price increases outpaced volume losses Intermodal revenue increased $46 million, or 8% versus the same period in 2016, resulting from highway conversions, organic growth with our existing customers and new service offerings Intermodal achieved record volume for the second consecutive quarter as total units once again topped the 1 million unit mark Our intermodal growth in the third quarter is the result of our market approach, which aligns our service product with the needs of our customers, enhancing their ability to grow while positioning Norfolk Southern as an integral part of their supply chain Coal posted year-over-year revenue and volume growth primarily due to increased export coal volume and pricing Coal RPU was up 1% due to the impact of pricing gains that were partially offset by negative mix Higher growth rates and lower rated export steam negatively impacted RPU despite improved pricing in our export markets Utility volume decreased as mild weather caused an approximate 15% year-over-year decline in overall coal burn in eastern utilities Turning to slide 8. We look ahead to the remainder of the year with confidence based on current economic trends In merchandise, we expect low single-digit growth in the fourth quarter Industrial production is likely to drive demand in steel, while growth in construction will positively impact our aggregate volume Further, we expect increased drilling activity in the Marcellus/Utica region will continue to drive growth in frac sand These increases will be offset by declines in automotive and by a lower crude oil, which is adversely impacted by pipeline activity Intermodal expectations remained strong as tight trucking capacity should be further impacted by the ELD implementation in December We continue to enhance our service offerings, providing growth opportunities with our customers to further drive revenue, volume and shareholder value In coal, we expect fourth quarter utility volume to be in the range of 15 million to 17 million tons impacted by the mild summer weather Export tonnage should continue to exceed last year's with volume in the range of 5 million to 6 million tons We remain focused on pricing in all of our markets Current indicators point to higher levels of demand and tighter truck capacity for the remainder of the year continuing into 2018. Such an environment increases our value in the marketplace, and we are confident that improvement will be reflected in our pricing Moving to slide 9. Our market approach and current opportunities are consistent with our strategic plan, offering a balance of safety, service, productivity, and growth to drive shareholder value To execute this plan, we deliver customer-centric service product that adapts to the needs of our customers, while providing an environment, in which, it is easy to do business Our customer-centric service product first focuses on tailoring the right service to our customers We collaborate with our customers to develop the best product that is beneficial to both our shareholders and customers We pay close attention to customer feedback and continue to make adjustments to meet their needs, viewing our product through the lens of our customers Our goal is to enhance the competitiveness of our customers in an evolving marketplace, allowing them to quickly adapt and compete for growth, increasing revenue to Norfolk Southern, while strengthening our role in their supply chain Lastly, we employ best-in-class industrial development team to help customers locate or expand on our lines, providing a future pipeline for growth The continuity of our management team, operating philosophy, and longstanding customer relationships combined with improving the customer experience and product is the overarching theme of our growth initiatives We are confident this approach differentiates our service product, allows us to compete with truck, and will continue to provide the revenue and volume growth and shareholder value we delivered this quarter Thank you And now, I'll turn it over to, Mike, for an update on operations <UNK>, as you know, we've clearly stated that our primary form of competition is truck And within the East, we have a unique opportunity to divert shipments away from the highway to rail Obviously, within intermodal container, but also within a boxcar, within a (20: 19), and within a multi-level and as truck capacity tightens, and that's the narrative that we hear from our customers on a daily basis that has volume implications for us and importantly it has pricing implications Certainly I think we're seeing some of that volume matriculate to us now and the pricing will continue into 2018, as our customers and we go through bid season With respect to share gains, once again our primary form of competition is truck We are going to put out a very dependable service product and a very consistent approach We feel like our customers value that approach And so that has been reflected in our volumes and in our revenue <UNK> - Credit Suisse Securities (USA) LLC Okay And then just a follow-up, as you think about just sort of the whole pricing umbrella Are you seeing an underlying acceleration in your core pricing growth, whether – I guess compared to the second quarter? As we're renegotiating contracts in the third quarter, we see more strength, particularly on the truck competitive business, as you would expect <UNK> - Credit Suisse Securities (USA) LLC Okay Thank you Yeah Our primary form of competition is truck, <UNK> We do share some customers with CSX and as I suggested, we're offering a differentiated service product and a long-term approach of a balance between cost effectiveness and supporting our customers' growth And so to the extent the customers are looking for dependable service provider, we're there Our primary focus is on securing business from the highway and we see that spot rates are up 15% in trucking and drive-in over the last couple of months and are up about 25% year-over-year That's also buttressed by an improving economy in which consumer confidence and the PMI for manufacturing are at effectively 13-year highs So our focus is on competing with truck That's been our thesis That's the opportunity provided to us by operating in the East and that's where we're going to see a lot of growth Yeah <UNK>, as we've talked before, there is a lot of collaboration within Norfolk Southern about volume opportunities And our primary focus was on making sure that any volume we brought on was accretive to the bottom line and to our shareholders and did not disrupt the responsibility that we have to our existing customer base to provide a consistent and predictable service product And so that's how we went into this We could be judicious with the unit trains that we added, and we look for opportunities to add trains into our scheduled merchandise network and within intermodal We also make sure that anything we brought on in the short-term did not necessarily reduce our ability to handle additional business at higher returns in the long-term <UNK>, we're pretty excited about the environment in which we're operating right now We see truck capacity tightening significantly, buttressed by an improving economy, which should certainly assist our intermodal markets It will also assist many of our merchandise markets, as we implement – we continue to implement our plan of a strong service foundation, schedules that meet our customers' needs, an equipment strategy that supports growth, technology improvements that optimize the distribution of the equipment and make it easier to do business with us All of that is part of our strategic plan It's all designed to compete with truck And so those are positives for us As I look into the fourth quarter, I'll draw your attention to export, we're still projecting 5 million tons to 6 million tons of export coal Recognize last year the fourth quarter was our highest export coal quarter I think through three quarters, we did about – last year we did about 10 million tons of coal, export in the fourth quarter we did 4.6 million tons So the comps get a little bit more difficult We also had a much milder summer in the East and the start to the fall has been mild And so I think we're going to be somewhat limited in our utility volume in the fourth quarter For export coal, what we're hearing, <UNK>, is that that market has legs through – potentially through the first half of next year A lot of the run up in price has been event driven, which isn't necessarily good, but I think it also supports the theory that the market out there for export coal is fairly tight Although I can paint the other picture As you're aware, API 2is backwardated right now So that suggests it's going down But the best I can do, <UNK>, is kind of tell you what we're hearing, which I just did, and then point you towards the economic metrics that we're looking at or indicators that we're looking at With respect to utility coal, that's going to be highly dependent upon the weather Natural gas prices are pretty similar to where they are – were at this time last year Stockpiles are down slightly versus last year I think they're down about where they were at like 79 days, they're off about 22 days from the high, which was May 2016. And really what happens in the first quarter and second quarter next year is going to be dependent upon weather patterns in the East in the winter So, <UNK>, the – as I think I noted, the contracts that we renegotiated in the third quarter generally had a higher level of increase than what we were able to secure in the second quarter So that's a positive for us I'll note that one of the things that really supported year-over-year rate increases this year within coal was the export market, and we certainly don't expect that level of run up next year As trucking firms, we've got a lot of business that's transactional, and that is going to offer support for pricing You know there was a lag there too because the uptick was relatively sharp, certainly a lot sharper than folks had anticipated generally in March 2014. We might be a little bit ahead of it this year in terms of the outlook because the commentary about the tightening truck market has been out there for a bit, particularly associated around ELD So we're certainly factoring that into our conversations with our customers and our bid approach, and frankly our customers are having those same kind of conversations with their customers Well, we've moved more towards shorter-term pricing in export so that has to be renegotiated But once again that's less than 3% of our overall volume With intermodal, there are defined escalators, but there's also transactional business and that has offered support for us I note that even this quarter we had RPU growth in all seven of our major groups Same thing we had in second quarter Second quarter, I would say, truck capacity was loose; third quarter truck capacity tightened and we were able to continue that March Hey, <UNK>, it is a – it's a very small component of our revenue We have every intention of growing that and we're working on opportunities to put together products that would improve that But, it's something that we're monitoring very closely where there have been four negotiations so far and there are three more that are scheduled <UNK>, I think, the key is the opportunity for both us and our channel partners in a tightening truck environment We have – we have strong relationships with channel partners throughout the intermodal business and we expect to grow along with them So, we see it as a win-win for NS and its channel partners We see it as an opportunity to grow both volume and rate next year Well, <UNK>, what's occurred is that, we're starting to see a much tighter truck environment and we've got some market approach that our customers value We've got a service product with schedules that meet their needs And, so, our conversation with them is how do we grow together And we firmly believe that negotiated rate increases reflect the value of your service product, and we're leaning in the price We're not putting new dots on the map We've got our capacity We'll continue to invest in the big areas like Chicago and Atlanta, but our focus is on utilizing the existing capacity that we have to – and leaning in the price to drive shareholder return Five years, 10 years ago, we implemented some Corridor strategies which have been very beneficial to us For instance, the Heartland Corridor, we put in the – handled business between the Ohio Valley and Chicago, and Norfolk And as volume moves to the East Coast ports, that's something that's going to support our growth And we've got the capacity in place Now it's our opportunity to leverage it <UNK>, capacity is tight with boxes, which is good for pricing opportunities, particularly on the transactional level As Jim noted, we're currently in the process of developing our capital plan for 2018. It's an ongoing process, as Cindy said We're implementing some things now, some things we're investing ahead of the curve in some areas and some things we'll be rolling out next year The foundation of it is a predictable service product What differentiates us is our equipment strategy for growth homogenizing the fleet that offers for better asset turns, that offers better equipment reliability, the ability to provide equipment in safe working order to our customers on time, better transparency for our customers, it's a customer engagement focused on proactive notification and a seamless interface with the customer It's collaboration with our short line partners and economic development partners to extend our network reach, it's innovative service products that utilize and generate a return on our existing assets All those things are part of our strategy to differentiate ourselves and help us compete with truck

2017_NSC

2018

LABL

LABL #Thank you, Joelle. Welcome to Multi-Color Corporation\ Yes, we're not expecting the swings that we saw this quarter. There's a number of things, including the timing of tax payments. So I don't think it's going to have any material effect; so, hence, we're still sticking with our $100 million in free cash flow projection. Net of tax payments, yes, but (multiple speakers). In the 5 times range. 5 times. Yes, I think the acquisition expenses were in line with what we were anticipating. And then there's ---+ unfortunately, there's a whole load of other bits and pieces that you ---+ we paid out that we ---+ for example, were part of the net debt deductions for purchase price; but essentially, come along on the balance sheet, and we pay them after closing. So the number is slightly bigger in terms of the way that it flushes out, but not bigger versus what we expected to pay. At the end of the day, there's some large numbers there, but it really had a minimal impact: some circa $800,000 in the quarter, $1.2 million for the year. So it's still, once it comes down to the net income line, it's still a very, very small delta in terms of the translation impact, which was positive for the year. Nonexistent. I think we still would stick with our range of 4% to 5% of sales, which is at the higher end of the range this year as we were last year, because we've seen the organic growth. So 5% is a good run rate for us. Yes, sure. So the external valuations have placed a higher portion of the purchase price on the [customer list biz], which does get amortized, versus the goodwill, which does not. No, that's the correct way of thinking of thinking about the amortization.

2018_LABL

2016

MDCO

MDCO #Good day ladies and gentlemen and welcome to The Medicines Company first-quarter 2016 earnings conference call. (Operator Instructions) As a reminder this conference is being recorded. I would now like to hand the meeting over to <UNK> <UNK>, Vice President of Investor Relations. Please go ahead. Thank you, Karen. Good morning everyone and thank you for joining us today for The Medicines Company first-quarter 2016 financial and operating results conference call. I would like to remind you that this call will contain forward-looking statements about The Medicines Company that are not purely historical and may be deemed to be forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by such forward-looking statements are identified in the Company's SEC filings and releases which can be obtained from the SEC or by visiting the investor relations section of our website. During our call we may refer to certain non-GAAP performance measures included in today's earnings press release. Please refer to the reconciliation of GAAP to adjusted net income and adjusted EPS in our press release for explanations of the amounts excluded and included to arrive at the adjusted net income and adjusted earnings per share. The press release can be obtained by visiting the news and the events section of our website. On today's call our Chief Executive Officer <UNK> <UNK>, our Chief Financial Officer Bill O'Connor will summarize our recent progress and financial results for the first quarter of 2016 and they will also be joined by Chief Corporate Development Officer <UNK> <UNK> who will be participating in the Q&A session. Now I will turn the call over to <UNK>. <UNK>, thanks very much and good morning to everybody. Thank you for joining the call. This morning we announced that we entered into a definitive agreement to sell our non-core cardiovascular products, Cleviprex, Kengreal and our rights to Argatroban for Injection to the Italian healthcare company Chiesi S. p. A. The total potential consideration for the transaction is up to $792 million. The structure of the transaction includes $260 million in cash upfront at closing, an estimated payment of $2 million for product inventory, up to $480 million in potential sales-based milestone payments and the assumption of up to $50 million in future milestone obligations due to third parties. Through this transaction, we are significantly strengthening our financial position to drive further development of our next-generation products without diluting our shareholders. We are also simplifying our operating structure and substantially reducing our annual SG&A and related R&D expenses by an estimated $65 million to $80 million recurring, also simplifying our operations and focusing on our R&D pipeline. We're also continuing to deliver on our strategic objectives while establishing a strong foundation for long-term, sustainable growth and value creation. Today's transaction is the second major deal we've announced since we outlined our strategic plan about 190 days ago on November 3 of last year. These complex deals have involved the disposition of six of our marketed products, three from the hemostasis portfolio and three from the cardiovascular marketed portfolio, and on the closing of today's transaction will provide total potential consideration of up to $1.2 billion including potential milestone payments and the elimination of milestone obligations. Today's announcement is strong evidence of our commitment to delivering on our strategic goals and the transaction itself is a major step in execution of that strategic plan. We see this transaction as a springboard for further progress and growth and as we increasingly focus on our highest value R&D assets, we anticipate delivering exciting news throughout the remainder of 2016. So let me turn to some of that anticipated news now. First, our PCSK9 synthesis inhibitor continues on track with enrollment in the ORION-1 study and we continue to expect that we will complete the trial with release of data by the end of the year as planned. In addition, during 2016 we expect to initiate a randomized study of this compound in patients with homozygous familial hypercholesterolemia, the so-called ORION-2 trial. The MDCO-216 or APO-1 MILANO-PILOT trial consisting of 120 patients is also on track, particularly for recruitment of the first 40 patients by midyear as planned. Further, also as planned the ABP-700 program for our anesthetic sedative compound has begun Phase 2 clinical studies in procedural sedation with results anticipated later this year. And finally, perhaps the most near-term event is the Carbavance Phase 3 TANGO I study which is close to completion with data expected during the second half of the year and a potential NDA filing by the first quarter of 2017 as planned. In April 2016, Carbavance was granted fast-track designation by the FDA which could potentially result in an expedited FDA review process. Our launch products including our non-core cardiovascular products which we've agreed to divest to Chiesi today are making steady commercial progress with revenues for that group of compounds plus others growing by 161% year over year. Our action plan looking ahead to the remainder of 2016 includes that we expect to complete and report data for the Phase 3 registration trials of Carbavance. We expect to have a first look at clinical proof-of-concept data for 216 from the MILANO-PILOT study. We expect to initiate the ORION-2 study in familial hypercholesterolemia patients. We expect to complete and report data for the ORION-1 clinical trial of our PCSK9 synthesis inhibitor. We expect to complete and report data for the Phase 2 trial of ABP-700. All these R&D projects are on track as planned. And finally, we expect to continue to grow our hospital launch products now focusing of course on Orbactiv and Minocin and Ionsys. With that brief update I will hand it over to Bill for a financial review. Thank you, <UNK>, and good morning everyone. Today I will focus on a few financial highlights from Q1. Detailed reports of our financial data are included in our press release which went out this morning and in our Form 10-Q. Our first-quarter results reflect the sale of our hemostasis business to Mallinckrodt which was accounted for as a discontinued operation. This sale was completed during Q1. Net revenue for the quarter totaled $50.3 million which includes $18.9 million of royalty revenue from the authorized generic sales of Angiomax by Sandoz. Revenues are down 54% year on year driven mainly by the loss of exclusivity in 2015 for Angiomax. Net sales from our launch products as <UNK> mentioned increased 161% from Q1 2015 to $10.9 million. We continue to be focused on tight expenditure management for essential investment programs. Our increase in R&D expenses versus Q1 of 2015 is driven by higher spending in support of our pipeline products. Our SG&A expenses are down slightly compared to Q1 2015. We ended the first quarter with $430 million in cash which does not include any amounts expected to be received in connection with the sale of our non-core cardiovascular products. We expect that transaction to close early in the third quarter. Finally, we continuously monitor our capital structure and are considering ways to extend the maturity of our convertible notes due in 2017. I'd like to also discuss updated financial guidance for 2016. This morning we will upload to our website a revised 2016 guidance worksheet to give some additional color around the divestiture of our non-core cardiovascular products, Kengreal, Cleviprex and Argatroban. The worksheet provides both GAAP and adjusted data. The adjusted amounts remove the impact of intangible amortization, milestones, changes in contingent consideration, severance and stock-based compensation. We have sufficient cash to deliver on our expected plans for the next 12 months including R&D initiatives. During 2016 we now anticipate net revenue to be $160 million to $170 million. Because our several hospital launches are at an early stage with unpredictable growth patterns and because the Angiomax situation remains uncertain from a patent litigation perspective, we are not able to provide individual product guidance. For cost of revenue we are guiding to 36% to 46% on a GAAP basis and 20% to 30% on an adjusted basis. The GAAP estimate includes intangible amortization of approximately $26 million mainly for product rights. R&D expenditures are anticipated to be $138 million to $148 million on a GAAP basis and $128 million to $138 million on an adjusted basis. The GAAP number includes $10 million of stock-based compensation, severance and milestones. If results from our trials are positive we may add further R&D expenditures in 2016. SG&A expenditures will support the continued launch of our remaining products namely Orbactiv, Minocin and Ionsys assuming no further divestitures in addition to our corporate overhead. For these activities we guide to $308 million to $318 million on a GAAP basis and $247 million to $257 million on an adjusted basis. The GAAP number includes approximately $61 million of changes in contingent consideration, severance and stock-based compensation. Should we divest further assets these guidance data will change and at which point we will revise guidance. For 2016 given our expected losses we do not expect to be able to recognize any tax benefit for either GAAP or on an adjusted basis and our cash tax expense will be minimal. With that I will turn the call back to <UNK>. Well, thanks a lot, Bill. Well, we're really excited about the future of The Medicines Company and we're aggressively executing on our strategic priorities. We've been optimizing our balance sheet and cash position and making very good progress in advancing our four potential blockbuster R&D programs towards key data disclosures this year as planned. We're introducing novel hospital products. We're managing expenses carefully to preserve cash and we're continuing to focus on creative ways to unlock shareholder value, generate non-dilutive capital and deploy capital against our most valuable asset. With that we'll open up for questions. (Operator Instructions) Umer Raffat, Evercore ISI. He may have stepped away from the phone. We can move on. Louise Chen, Guggenheim. Hi, Anna, thanks. This is <UNK> here. I think our best opportunities are within our own pipeline and portfolio. We are extremely focused on PCSK9 synthesis inhibitor which we think has the potential to be a game-changing blockbuster in the dyslipidemia space. We're very excited about the progress of APO-1 MILANO or MDCO-216. The beginning of the work in Phase 2 for ABP-700 is really going quickly and aggressively. And then finally, of course the Carbavance data reveal for Phase 3 will be coming up quite soon and that program is also on rapid track. So I think those four blockbuster R&D projects give us some very exciting shots on goal and that is where we should be putting our money right now. As to longer-term views of business development and in-licensing, I think that's something we'll review through the year but right now very focused on capital deployment against these existing assets. Adnan Butt, RBC Capital Markets. Hey, good morning this is [<UNK> <UNK>] on for Adnan. For the 216 trial, is the trial going to be blinded and what does the 40 patient update represent. <UNK> again. So the trial is blinded. It's enrolling quite well I might add and the data monitoring review committee will see the data and then depending on exactly what they show there are a number of procedures to discuss how the trial should proceed. So as is typical with interim analyses, the actions to be taken are contingent on how strong the data are pushing you in one direction or another. I know you [just say] about guidance. Would it be possible to just give it quickly again. I just want to make sure I got everything. Yes, of course, Bill do you want to do a reprise. Sure, sure. The revenue we expect to be $160 million to $170 million. Cost of revenue on a GAAP basis we're expecting 36% to 46% and on an adjusted basis 20% to 30%. The GAAP number includes intangible amortization of about $26 million for product rights. R&D expenditures we're expecting $138 million to $148 million on a GAAP basis and $128 million to $138 million on an adjusted basis. And the GAAP number includes $10 million of stock-based compensation, severance and milestones. SG&A we expect to be $308 million to $318 million on a GAAP basis and $247 million to $257 million on an adjusted basis. And the GAAP number includes approximately $61 million of changes in contingent consideration, severance and stock-based compensation. Great, thank you so much. <UNK> <UNK>, JPMorgan. Hey there, good morning. Thanks for taking my questions. I guess first, can you talk about the breakdown of the expected savings within that $65 million to $80 million and how much of that is SG&A relative to R&D and also just the timeframe around when those cuts will fully kick in. Beyond the partial year is that $15 million cut to SG&A just an indication that they will sort of scale in over time. Also I think you had 268 reps as of year-end. Can you tell us what your target salesforce size will be once that transaction and those restructuring activities are completed. Next question is can you just remind us of the study design for HoFH. And finally, can you elaborate a little bit on what we can expect to learn from the Phase 2 study of ABP-700, a little bit about study design and how many patients that will be. Anything else, <UNK>, while we're at it. I think that's it for now but ---+ All right, well everybody settle down and we'll see if we can answer <UNK>'s questions. Good questions, <UNK>. First of all, let's deal with the breakdown and the timing. Obviously a lot of the restructuring charges will be incurred as a direct consequence almost immediately of divesting this core business or ---+ excuse me ---+ non-core cardiovascular business in which we have a salesforce. Against that we won't be using that salesforce going forward, that will largely be reduced and many of those people will go to Chiesi which is exciting for them and an important part of this transaction. That's a core of it. I think we're going to take the opportunity to make sure that we have adjusted all of our administrative and other support services and of course also considerable amount of R&D, ongoing R&D which is related to Phase 4 studies will also be assumed by others. So that's going to start happening pretty much right away. However, of course in 2016 terms it is probably half a year's worth and of course we'll have to do the restructuring charges during the third quarter, Bill, possibly ---+ Yes, we'll probably record some in Q2 but there will be some ---+ Well I think first of all I think Chiesi's view of these products is as positive as ours is. The structure of the deal I think reflects their enthusiasm for these products, particularly obviously for the growth potential for Kengreal and the growth potential for Cleviprex. I think that's an exciting point of the deal which hasn't been mentioned yet. But we believe Chiesi is a very capable organization who's very committed to this space. And we really do feel that the milestones we've agreed, I mean they essentially lift it straight out of our business plan and more or less fit with their business plan perfectly. So a real sense on both sides we can really make something of these products. And we're going to continue to support Chiesi in every way we can as we transfer these products to make sure that they are successful. A lot of our very best professionals are likely to be offered roles at Chiesi and I think that's really important as we blend our organizations and put everybody's shoulder behind the wheel of growing these brands. So I think, Joe, basically we're very ambitious about the milestones. <UNK>, do you want to talk about the structure of the milestones. I'm not sure disclosures are necessary or appropriate at this stage so I'll shut up. Yes, <UNK>, the milestones they are individual for each of the products for Cleviprex and cangrelor and they run out over a number of years. They are yearly milestones rather than paid on an as-you-go basis. So they have milestones that are annual that must be met in order for the milestone payments to be made. Okay. Yes, there are time periods, so there are multiple milestones for each product and there are time periods in which those yearly milestones must be achieved in order to receive the milestone payment. Well we're all hoping to go home and get some sleep before we move on to the next deals, Joe. But since you bring it up, look, I think our infectious disease business is a very exciting business. It has two novel marketed products. We're looking forward to some exciting data on Carbavance. And I think as those data emerge we can decide how to best drive that business. I mean there are very few people in the industry that have anything like that kind of a setup, one or two companies at most working with multiple assets in this very important brave new world of multidrug resistance. So that's the exciting business. How that business should be invested in, how it should be structured, we've indicated in our strategic reviews that we're interested in almost every strategic option for funding and growing these businesses aggressively and unlocking shareholder value and that's what we'll do. But today's a bit premature to say exactly what steps should or will be taken. And I think the same with Ionsys. We have two programs here in perioperative care including ABP-700. They fit together extremely nicely. And at this stage let's get some data and let's continue working hard on the Ionsys launch and see what the right way forward is. So not ruling anything out as President Obama once said but I am equally not ruling anything in either. Hey, <UNK>, thank you. <UNK> again. Well, look, the natural thing obviously in a perfect world would be to see Angiomax in the same bag as Kengreal. There is one slight wrinkle is that no one including us is in a position to value Angiomax with any reliability or precision based on the litigation process that we're currently going through. We had what we believe was an excellent hearing at the en banc review last week. It is not for me to comment on what I think the outcome of that will be because there are 12 very experienced judges who will decide. But I think anybody who had attended the hearing or read about it would conclude that our arguments are sound and our assertions that we have intellectual property out to 2029, well, we're going to continue making those assertions and defending our intellectual property as aggressively as we possibly can. What the outcome will be, <UNK>, is not really for me to try and judge. It's not what I'm paid to do. As that emerges with greater clarity we may be able to appropriately value on behalf of shareholders what that asset is worth and then consider the different options for it. But from a strategic or operational point of view, of course, it's the cath lab products are the leading, still the leading volume of novel cath lab product used. And it's doing very, very well by the way. And it deserves a lot of attention once we clear the legal situation. Yes, there is a 90-day review of data which will allow us, as you will recall from the Phase 1 data once you get out to 90 days you've got as much effect of the drug as you might expect to see, in fact probably happens earlier than that but at 90 days you've got a good view of the depth of PCSK9 knockdown and of LDL reduction. Those data we should be able to talk about those data in the third or early in the fourth quarter because those data will tell us all what the right dose might be. As you know we're hovering around 300 milligrams. It could be 200, it could be 500 and that will tell us whether we're on track. It won't of course at that stage give results ultimately the duration data that we'll have at the end of the trial but it will give us a lot of insights. And of course at the time of review of the six-month data ---+ excuse me, the three-month data, quite a few patients will be out at six months already. So we may start to get some indicative view of duration as well. That's what we anticipate. I hope that's a helpful answer. There is an ongoing safety review by DSMB. And we are recruiting patients quite rapidly, which means we probably now have a multiple of patient experience compared with the Phase 1. If you think the Phase 1 was 50 or 60 people we're recruiting 480, we're well, well, well through the trial. So we've already injected a whole lot of other people. And I'd say that with the speed of recruitment and with the enthusiasm we're receiving the safety appears to be very reasonable at this stage and nothing popping up at all that is of any concern whatsoever. So I think that's good news. As to when and how we can reveal the Phase 3, obviously we know this is very important to investors. And we are very committed to get the information into the hands of investors as soon as we possibly can, subject to the usual countermanding principles of academic data review and safety review and revealing data at major meetings. So if there was an opportunity to talk about the three-month data in the fall, at an academic meeting, or late fall we may be able to take that. But it's a little premature to know for sure yet. But we are very committed to get the information into investors' hands as soon as possible and of course we're very, very excited about the likely data coming out of Amgen 2 on outcomes with the antibodies. Thanks very much. Look, during Phase 2 a lot of clinical trials look the same. And so I think as we're in Phase 2 for most of this stuff at the moment, we'll spend roughly proportionate amounts of money on all four products, perhaps with the, well, I'll forget Carbavance because it's finishing Phase 3 but there are line extensions to consider. The one product that I think has the most chunky on-off switch is of course MDCO-216 where the manufacturing step up has to be considered, assuming the Phase 2 proof-of-concept study that we're currently doing is positive. So once you get into Phase 3 of course we would need to describe to you exactly what the Phase 3 clinical studies are, their size, their scope, their duration, in order to give you better guidance on the R&D mix and what we're spending more money on and less money on as we go for it. So it may be a little premature to give any helpful guidance on allocating capital to four different assets until and unless we have clear evidence that we're going up through the Phase 3 programs. I hope that doesn't sound evasive. It's literally that I don't know at this stage what the R&D mix will be until I see the Phase 2 data. Now you ask a wonderful question about cardiovascular. It's interesting when we bring together our advisory boards and clinical design groups and we look around the room we have many existing friends from the thrombosis area who are key opinion leaders who also stretch across to the dyslipidemia area. And we also have found a lot of new acquaintances in the dyslipidemia area who had worked for example with our colleague David Callan in the past on pure dyslipidemia programs. There's clearly a confluence of expertise from KOLs who work on both sides of that spectrum of atherosclerotic disease, the acute thrombosis players and the chronic dyslipidemia players. However, I think when we look at where we can make the most difference, and I don't mean to get too philosophic here, the opportunity to make a difference in the prevention of primary and secondary prevention of heart attacks is 10 to 20 times greater than anything we would hope to do in the cath lab both in terms of impact on life, on morbidity and of course on economic outcomes and therefore also from a financial point of view. And the reason we're rotating our capital off the acute phase cardiovascular work is that first of all I think we can be very proud of what we've done so far. Further progress is going to be essentially asymptomatic. When we began in the cath lab people are bleeding at a rate of 10%. It's now ---+ and I'm talking about severe bleeding ---+ and it's now 1% or less. Heart attacks were happening at around 10% after a PCI and now it's more like 2% or 1.5%. So I think the opportunities for further improvement in care and therefore further improvement in economics and therefore further creation of value for shareholders is stepwise whereas there are massive opportunities in the prevention of heart attack space with this new technology. And we think we need to deploy our capital against the massive opportunities more than against the incremental opportunities. It's just where we want to go and I hope ---+ we've been encouraged to do that by shareholders and we really mean to. So that's really why we chose to do this. It's where we can make the biggest difference in healthcare and where we can make the biggest difference in terms of value creation for shareholders. Yes, we are. Yes, <UNK>, thanks very much. Very important question and obviously as we look back on the last five major cardiovascular launches by frankly outstanding companies, meaning the two P2Y12 launches Effient and Brilinta, we were involved ourselves with Brilinta. We look at Entresto from Novartis and then we looked at the two PCSK9 antibody launches from our colleagues at Sanofi, Regeneron and at Amgen. There is no doubt at all in my mind that these are great companies with great commercial organizations that really know what they're doing and they really have put significant resources behind it. I think it would be fair to say the market is challenging, that demand by payers for explicit evidence of outcomes improvement, demand by payers for significant discounts particularly at the beginning of product life cycles is there for all to see. That shouldn't be confused with the ultimate advancement of clinical health which I think is going to be massive with the PCSK9 story. It would be very difficult for us here to imagine not having positive outcomes trials from the antibody trials. And so we remain very, very excited about the market opportunity. Moving to how we might come into that market obviously we need to get some data. But clearly the idea of a six monthly or twice yearly dosing of a very effective PCSK9 synthesis inhibitor would I think be a game changer. And on top of the significant market development work and educational work that's being done by our colleagues we'd be very comfortable to build on that platform. So I know that the expectations were perhaps great in terms of takeoff for those products but when you look at the complexity of their introduction and you look at the recent history of cardiovascular launches and then of course the gun shyness that we created among payers with the hepatitis C story it is perhaps not surprising at all that there's a lot of pushback from payers and most of which is I believe the refusal to reimburse when physicians want to prescribe. I think the demand is there among patients, certainly the need is there. The enthusiasm is there among doctors. But the payers haven't quite got their arms around it and they are going to have to. I think they will as they see the outcomes data. And this is going to be one of the largest classes of medicine in the history of the pharmaceutical industry. Well, we thank you for attending our call today and for the many excellent questions. We will continue to aggressively pursue this strategy of deploying our capital against our most valuable assets. We will continue to pursue strategies and deals that can help us do that. But most of all we will continue to focus on moving those R&D programs forward in the most expedition fashion possible with high quality. Thanks very much for coming today. Bye-bye.

2016_MDCO

2018

PSB

PSB #Good morning, everyone, and thank you for joining us for the First Quarter 2018 PS Business Parks Investor Conference Call. This is <UNK> <UNK>, Chief Operating Officer. Here with me are <UNK> <UNK>, CEO and acting CFO; and <UNK> <UNK>, Vice President and Controller. Before we begin, let me remind everyone that all statements other than statements of historical fact included in this conference call are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond PS Business Parks' control, which could cause actual results to differ materially from those set forth herein or implied by such forward-looking statements. All forward-looking statements speak only as of the date of this conference call. PS Business Parks undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For additional information about risks and uncertainties that could adversely affect PS Business Parks' forward-looking statements, please refer to the reports filed by the company with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. We will also provide certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to GAAP is included in our press release, which can be found on our website at psbusinessparks.com. I will now turn the call over to <UNK>. Thank you, JP, and good morning, everyone. First, I will give a quick overview of company results for the quarter, then JP will provide specifics on operations and markets, while <UNK> will finish with the financial update. We started the year well. If you remember, there were 2 events that drove first quarter 2017 Same Park NOI unusually high. These events were triple net billings and a very mild winter for snow. If you strip out these 2 items, we would have seen 3.9% Same Park NOI growth in the first quarter of this year. We continue to see strong results in the majority of our portfolio, including 4.3% rent growth or nearly 1.6 million square feet of leasing and 70% retention. We did see occupancy dip sequentially due to natural expirations, but are encouraged that the bulk of these move-outs were in the strong West Coast and Florida markets where we will be able to re-lease these suites with higher rents. All of our markets are experiencing job growth and confidence remains high within our customer base. Now that the development of Highgate at The Mile is complete, we revised the JV agreement with our partner, and commencing on January 1, we took control of the partnership. Doing this allows us to consolidate Highgate in our financials. We continue to see success with lease-up and occupancy increased to 91 ---+ excuse me, 61.5% in the quarter. Now that winter is over, we are seeing the lease-up pace accelerate to last year's levels as we enter the busy spring and summer months. At the beginning of the year, we reclassified 7.6 million square feet of flex properties to industrials based on a critical review of our properties' office-to-warehouse ratio. We revised our definition of industrial to include properties with both truck-loading access and less than 40% office build-out. We believe the reclassification will assist investors to better understand our business operation. On the acquisition front, bidding is aggressive for flex and industrial products, no matter the size of the portfolio. We remain focused on identifying underperforming and value-add properties with an investment strategy that is tied to acquiring quality assets that are ultimately accretive. Capital flows and competitive buying behavior are at all-time highs in the markets we operate. In fourth quarter, I announced that we were marketing our 3 office parks in Orange County. The assets totaled 705,000 square feet and generated approximately 3% of the company's NOI. So far, this year, we've sold the 2 larger assets totaling 598,000 square feet for net proceeds of $115 million, or $192 per square foot. That leaves 2 other previously announced assets, which are being held for disposition, these are the remaining small office parks in Orange County and the large tenant flex park in Dallas. We are confident that both will close this year. We are working to identify acquisition assets, which we can exchange in order to protect the gains on the sale. However, for the reasons stated above, the investment arena remains a challenge. Regarding our CFO search, we continue to assess internal and external candidates. Now I will turn the call over to JP. Thanks, <UNK>. As far as our markets are concerned, our industrial and flex portfolios continue to operate under landlord favorable conditions in the first quarter. California, Texas, Florida and Seattle all delivered positive net absorption, rent growth and healthy user demand, along with minimal, new competitive constructions. I will now discuss first quarter specifics by market. In terms of market fundamentals, nothing much has changed in Washington Metro, as landlords deal with GSA and government contractor consolidation headwinds. Owners remain very aggressive when competing for deals over 10,000 square feet, especially with TI and amusement packages. Our team in Washington Metro continues to outperform the market by focusing on small businesses and we signed 335,000 square feet in 116 transactions and average deal size of 2,900 square feet. Same Park occupancy dipped 140 basis points to 90.4% due to the move-out and downsizing of a handful of users over 15,000 square feet. Rents declined 8.8% and retention was 69%. Moving down to South Florida, we had another strong quarter, signing 390,000 square, with retention of 79% and cash rent growth of 3.7%. Occupancy dipped by 130 basis points to 96.2% as one 44,000 square foot user vacated at the end of 2017. We have good activity and I expect that space to be re-leased soon. As a reminder, we're losing a 100,000 square foot user this quarter as they outgrew their space. Our marketing efforts are bearing results and I expect to re-lease that space in the next several months to a couple different users. In Texas, we signed 74 leases for 272,000 square feet, an average of 3,600 square feet. Occupancy in Texas dipped 80 basis points due to one large user moving out at the end of 2017. Retention in Q1 was 74% and rents increased 4.8%. At the end of the first quarter, a 100,000 square foot government contractor vacated, and we are in the process of marketing this space with good interest geared towards subdividing the building. Our team in Northern California continued their run of outstanding performance, increasing occupancy to 97.6% on 250,000 square feet of leasing. Rents were up almost 19% in the quarter as we are able to capitalize on strong demand and limited supply. Retention was 50%, primarily because we pushed out customers who are not willing to pay market rent and upgraded the credit quality within our portfolio. In Southern California, our team signed 131 leases totaling 305,000 square feet, right in line with our sweet spot of a 2,300 square foot average deal size. Blended Southern California occupancy increased 10 basis points to 97.4%, with Los Angeles leading the way at 97.9%, Orange County at 97.1% and San Diego at 96.7%. These numbers exclude our Orange County office properties that we sold or held for sale. Demand is still robust and rents in Southern California increased by 3.9%, with retention of 80%. In Seattle, we are benefiting from consistent demand, a strong job market and limited new supply that kept occupancy at 98.2%, while increasing rents by 16.4%. Our retention of 22% in Seattle was a result of a lack of expansion opportunities for our customers within our parks. Moving by economic tailwinds, healthy job growth and a strong small business climate, I am focused on the opportunity we have with the 4.3 million square feet of expirations remaining in 2018. Of this 4.3 million square feet, approximately 35% or 1.5 million square feet expire in California and 37.2% roll in Texas and Florida giving the teams plenty of opportunity to extract favorable lease terms. I will now turn the call over to <UNK>. Thank you, JP. We reported FFO of $1.59 per share for the first quarter, a 4.6% increase from $1.52 in the first quarter of 2017. The growth was driven by higher NOI combined with lower amortization of long-term equity compensation and preferred distributions. First quarter Same Park NOI growth of 0.7% was driven by a 2.4% increase in revenue, due mostly to higher rates. First quarter Same Park property expenses were up 6.5%, due to the higher snow removal cost and utilities. Excluding the impact of triple net expense going in the first quarter of 2017, the Same Park revenue growth was up 4.2%. Based on an amendment to the joint venture agreement, we consolidated our multi-family asset Highgate as of January 1, 2018, and as a result, delivered 427,000 of NOI for the first quarter of 2018. During the 3 months ended March 31, 2018, we incurred $7 million in total capital expenditures compared to $8.7 million in the same period in 2017. $1.3 million of the increase ---+ decrease relates to costs incurred on the 2016 acquisition in Rockville, Maryland, as we were repositioning asset in the previous space for occupancy last year. 262,000 of the decrease was a result of a reduction of capital incurred on our assets sold or held for sale. Our dividend payout ratio was 67.6% compared to 71.1% for the 3 months ended March 31, 2018 and 2017 respectively. We generated free cash of $14.2 million during the quarter of ---+ first quarter of 2018 compared to $12 million in the first quarter of 2017. The increase in free cash was primarily due to the decrease in capital expenditures and lower preferred distributions. On January 3, we redeemed the remaining 139 balance on our 6% Series T preferred stock, which brought our average coupon rate to 5.4%. Now we will open the call for questions. Yes, <UNK>. We can say, for the cap rates, we were in the mid-5s. And the timing for Texas is coming up very shortly. And then, our final offset ---+ office outset, we're just doing a little bit more still in our marketing, so that will be a little bit later in the year. At this point, we don't have anything else planned. Just one comment, I'm sorry for interrupting, but the large flex asset in Texas, we had announced that about a year ago. And so ---+ and now, it's closing fairly shortly. Yes. From quarter-to-quarter, we'll have leases that may or may not roll off higher rents for specific situation, but it's not indicative of the market at all. As I mentioned in my comments, Dallas is a good market, and we do have ---+ we had a large user, as I mentioned, vacate at the end of 2017, and we'll have to re-lease that. But otherwise, we like the market and expect rents to continue to move forward in Dallas. <UNK>, on the classification of the flex to industrial, just had a couple of questions, firstly, how do your new or newer definitions compare to how the potential appraiser or buyer or somebody else looking at those properties will look. Manny, I'm sorry, but you're completely staticky. I can't understand your question. Is that better. There you go. Thank you. So <UNK>, the question was on the reclassification of the properties from flex to industrial, how would a potential buyer or appraiser or some other third-party look at those. Would the definition closer to what you were looking at previously or what you're looking at now. No. Absolutely, it would be considered industrial. And as you know, we look at every ---+ we see every industrial package come out and what we recognize is that a lot of our products, which we call flex, is really defined in the market as industrial. And then, also in investor meetings, Manny, JP and I spend a lot of time defining flex. So what we wanted to do was create a consistent definition that is consistent not just for us, but also consistent among our industrial peers on how we look at industrial. According to NAIOP, flex is a subset of industrial. So ---+ and industrial does include manufacturing, warehouse, flex and R&D. So that all falls under the industrial umbrella, but we just wanted to have a more consistent definition, both within our definition as well as consistent with our peers. And then, if I look at your supplemental disclosure, it looks like some places have been re-classed between those 2 buckets, and then others like the lease expiration schedule haven't. Am I looking at something incorrectly, or is that to come. It should have all been re-classed, Manny. But you know what, we're going to check that. And if something was off, we'll definitely send a note out and repost. But we think we caught all of that. Okay. And then, my final question is going back to the CFO search that's been on for a while. I was under the impression that you had identified somebody a couple of months ago or a month ago. What has changed there. Is it a different type of candidate that you're searching for. Or something else that's precluding you from closing that process. Actually, we have very good internal support, both within our own team as well as Public Storage. So as we've been identifying external candidates, we're also evaluating internal candidates. And we just want to make sure we hire the right person. Sure, <UNK>. So we think it will help the defense sector, and that's primarily Northern Virginia. Unfortunately, we don't think that really is going to kick in for a year or 2 until the GSA can really understand what their new requisitions are for that space and contractor requirements, et cetera. But we do think, in a year or 2, we'll start to see the benefit of that, primarily in Northern Virginia. Does that help. Well, those are still current tenants, customers of ours, in suburban Maryland. You're right. And we're talking with both right now in terms of renewing their space. But the reality in suburban Maryland is vacancy rates are in the high-teens in suburban Maryland, as you well know. And I don't anticipate that changing at all. And thus, there's no pricing power as we renew tenants, especially the big deals like that, as you know. There have only been a handful to 2 handfuls of deals over 20,000 square feet in suburban Maryland over the last 4 years. So where our focus is, as I've discussed before, is on occupancy and maintaining our customer base. So unfortunately, there's no pricing power yet in suburban Maryland because vacancy rates are in the high-teens. Good question, <UNK>. And we should be stabilized before the end of the year. And that's assuming we have as strong leasing this spring and summer and fall as we did last year. It's a little bit difficult to predict, both because Tysons is a new market and ---+ for a lot of the owners, if you think about all the new high-rises in our project. And so it's hard to really trend. But just based on what we saw last year, we should be stabilized by the end of the year. Oh yes. I mean, we're ---+ when you're entitling 40 additional acres, right now, I believe that's the largest retitlement occurring in Fairfax County, and that we submitted last year and that's about an 18-month to 2-year process. But as soon as we can get through that, we're preparing ourselves to launch phase 2. Sure, Tony. And this is the reason why if you look at the analyst package, starting last year, we've started breaking out by quarter, and we literally call out snow because last year was incredibly light. And what happens when you have a very mild winter, you also have low utility. This year, we saw a more normalized snowfall, but it was a cold winter, and so utilities were a little bit higher. If you think about expense control, our teams are doing a really good job of holding most of their controllable expenses at a 1% or 2% increase year-over-year. But utilities ---+ well, snow winter, then utility can fluctuate first quarter, and then summer and fall, which really hits us in third quarter. And then, the only other expense that we really see kind of high operations-wise that will continue through the year will be the property taxes. Does that help. Absolutely. This quarter, you shouldn't ---+ in Q2, you shouldn't see a big variance from that. We do have to match our expense reimbursements with the level of expense. So expense reimbursements recorded in the second quarter will be lower than the first quarter. But sequentially, from an NOI perspective, we will definitely see some benefit from the lack of snow removal and utility costs. Yes, Tony. We love our all the markets that we're in right now. We consider them all core for PSB. The West Coast, South Florida, those markets that we're in, everyone considers core, gateway. And so we are looking to acquire in any of our markets. And on the investment sales front, activity was very low, especially compared to some of the activity last year because there haven't really been, in the gateway markets, any major industrial sales to date. But what we're seeing is that there ---+ you do get into a bidding war. And sales are hot right now for industrial and flex. And very often, the bidding just kind of spirals out of control with as many as 5 and 6 qualified buyers in our market. So it's ---+ where you're seeing the sales happen that are in place, 4 caps. And even upon stabilization, they're not getting above a 4.5 unleveraged cap rate. Yes, good question, <UNK>. No, there's nothing to read into that. We're negotiating the ground lease with the current customer on extending both the ground lease and the customer. So I wouldn't read anything unusual there. Does that help. For some reason, we can't hear you, <UNK>. <UNK>, if you can hear us, the ground lease is with the airport authority and so it's just taking a little bit longer just because we are negotiating with the airport authority. They don't have these leases turn very often. So we are in the negotiations, as JP said, for both extending the ground lease and our customer. Okay. Thank you, everyone, for your interest in the company and we'll talk to you next quarter. Have a good day. Thanks, Stephanie.

2018_PSB

2015

SLAB

SLAB #So the video, we were a bit surprised by the decline in bookings that we saw on Q2, and that's continuing into Q3, primarily with our tier 1 customers in Korea. We believe that our share with those customers remains strong. Our design win activity remains strong. But there is we believe that there's some over inventory in the channel. We've got some macro FX with you the Euro, we've got weak demand there. We also have higher dollar content there. So, that's kind of exacerbating some of the swing in revenue that we see. We don't really have visibility into what Q4 is going to look at this point. There are some indications that the TV makers are going to refocus, but we haven't seen that yet in our bookings. And really it's a little bit early for us to start talking about what it looks like in Q4. But if you just look at our market share with those customers, we would stand to benefit from any rebound if that was going to occur. Sure. We've traditionally been very strong in the ZigBee market, one of the, if not the leading supplier of solutions, and Thread is essentially the latest incarnation of the 15.4 standard which ZigBee is based on, and we have a leadership position there in the standards body. We have the leading stack and are partnered with all the key customers around this new trend. There are hundreds of customers signed up with the Thread group, and we believe that the momentum both with ZigBee and with Thread, especially the home automation and security markets is quite strong. We are seeing a lot of traction there with operators and in the retail channel with larger retailers coming in and putting platforms in place, many of which are based on our silicon and software solutions. So we start in the wireless connectivity market from that strong base, our next-generation platform has Bluetooth Smart capability to that. So we have both ZigBee, Thread, some proprietary solutions, as well as Bluetooth Smart in a common silicon platform. The Bluegiga software runs on that chip. And so the Bluegiga business came in. It was one of the strongest Bluetooth module providers, and they had a leading software stack with over a decade of maturity, and that software is running on our chip, and that chip is going into their modules, and they're also going on board, there's going to be an important SAM expansion for the Company. We have not traditionally participated in Bluetooth Smart. We've got predictions of that being over 40% of the low-power wireless chip set market. It's a very critical standard for the IOT. And it allows devices to connect directly to smart phones. And you can start to imagine where the ZigBee capability and the robust wireless mesh networking starts to dovetail with the ability to connect directly to smart phones in the same device. That opens up entirely new use cases. So, the multi mode capability is going to be a big advantage for us, and just the participation in that market, and the rapid expansion of the number of applications and volume is going to be an important growth driver for us. We've got important traction in that market with our Bluetooth module business, Bluegiga module business that we have, and a tremendous amount of customer traction both at the silicone level and the module level around Bluetooth Smart. So we're quite optimistic about this being a very important component of the IOT, and a very important component for us in our business and a growth driver for business going forward. We're quite pleased with our performance in the infrastructure business in Q2 and going into the second half. While we've seen a lot of companies talk about weakness in the wireless base station market, our business has traditionally been focused more on the core network and on data center applications, and we are seeing strength in bookings and in the trajectory of that business in the second half, really driven by our record design win activity and performance over the last 18 months. We've had very strong traction with new products, and with existing products in our clocks and oscillators, into those applications, and our latest generation products going into wireless PlayStations. We do believe there's a market expansion for us. But overall we are quite pleased with the performance of that, and also see that the market segments that we are in our healthier than many others have seen. <UNK>, this is <UNK>. Really the pricing is set on essentially a yearly basis and we are in the middle of a model year. There's no pricing dynamic that we are seeing in the market that's influencing with Q2 and Q3, and really there's not much difference in terms of ---+there are some design wins in mid-year models, but overall this is a purely an inventory and a macro issue that we are seeing. Not a pricing issue at all. Well, if you look at the performance of the IOT business over the last 5 quarters, we've driven 35% year-over-year growth. If you look organically, that is still in the strong double-digit range, that reflects broad traction across our 8-bit, 32-bit proprietary wireless, ZigBee wireless, really across the board and even our sensor products are starting to gain traction in the market. So if you look at it on a year-on-year basis, it's solid. And if you look at the design win traction we've actually been seeing increasing design wins and customer design and activities across all of those products of EFM8 MCU's, which we introduced in Q1. Our new wireless products that we are out sampling. So I believe that you know while we may see a little bit of impact from what's going on in the macro economy, I don't believe that there's any decline in the overall trajectory or in the long-term trajectory of that business. We had hoped that Q3 would be a little bit stronger than it is, and the design win activity would have indicated that, but overall, if you look at it just on a little bit longer scale we are very pleased and very optimistic with how that business is coming through. <UNK>, I think we have to look at this really two different ways. I believe that our market share with our primary customers, and really overall, has remained the same. We continue to enjoy dominant share in our Korean tier 1 customers. We did lose a little bit of share in North America due to the Cresta Tech lawsuit that we were involved in, and we believe that we will be able to get that share in Korea back, as we move forward through the year into next year. Overall our market share with our tier 1 customers, if anything, has increased slightly. I think that the other way to look at this business though is that the overall TV market is down, we've got a pronounced decrease in shipments out of our tier 1 suppliers. So whether overall market share, where last year we were 55% of the overall TV market, we really have to see how the year plays out, but our overall fraction of TVs ship may go down. It's not because we are losing share with our customers, but possibly because our customers have a smaller volume share of the overall TV market. But it really depends. I think we've also that the Chinese TV shipments have also slowed down with the Chinese makers, and certainly Japan is seeing these effects as well. So how it all shakes out. But I think overall our market share is solid with our tier 1 customers, our design wins are solid. We feel very good about where we are with our positioning going into the 2016 model year. But we will see how that plays out. Well first of all as the other components of the business perform, we've had Broadcast automotive, we've had our IOT products and Infrastructure products growing 25% year on year. We've had---+that's now 2/3 of our business, so as the consumer portion of Broadcast, and specifically I think you're talking about the TV portion of, as that becomes a smaller fraction that will move the needle less. We do feel like this is a long-term business for us in terms of, this is not the ---+ TV tuners is something we believe is going to be a separate device over long period of time, and a very good technology and it generates good profits for us. So we believe that it's something that, while that's not the strategic growth area for us, that we do believe it will move into more of a mature category similar to our Access business, and once we get through the volatility that we are seeing recently, we will return into more of a steady-state sort of business for year to year. But that being said, we certainly will look at ways to optimize that situation. We have been redeploying a lot of resources and focusing in on our strategic growth sectors around IOT, and feel really good about those investments and how that's moving forward. And certainly we would consider all options. But at this point it looks like it's going to be a long-term business for us and a decreasing fraction of the overall business, but an important cash contributor for the Company. Certainly <UNK>. We, as <UNK> just mentioned, we have been undergoing efforts to redeploy our resources in some of the more mature categories into our strategic growth areas and we feel that is fundamentally important. This issue that we're seeing in Q3 certainly makes model performance a bit more challenging, but taking a longer-term view, it is fundamentally important to us to continue to invest for success in the Internet of Things, and in the Infrastructure markets, and we will continue to strike the balance between making those investments in optimizing our P&L. It's just something we will have to watch further, but we don't want to do something over reactionary and impact those development programs, which are very important for the long-term success of the Company. <UNK>, this is <UNK>. We believe if you look at the book-to-bill ratios that we had with this couple of customers. They were well below one in Q2, and we believe that on the order of, I don't how to quantify it, but they have many millions of tuners sitting in inventory that they are burning through right now, and the question is how to sell through their end products goes in the second half and how quickly they can burn that off. There's a substantial inventory. We shipped pretty heavily in Q1. They put the brakes on in Q2 and we are feeling the effects of that certainly was prominent here in Q3, and our hope is that they are burning off the inventory and are looking at how to reinvigorate sales during the second half. But we don't know exactly how long that's going to take. The guidance that we're getting here in Q3, is to the best of our knowledge, what we think the situation is at this point. Our tuners are global so they work across all of the various standards. And when you look at an HDTV versus an ultra HDTV, there's a general similar content from our side. So whether it's a high def 4K TV or an HDTV, it's essentially the same front and that's being used in all of those different applications. So it's ---+I think just all if you look at the TV market the 3-D trends didn't really play out. You've got Oled as an important driver, but that really hasn't sold through. You had the 4K TVs being quite expensive and an interesting technology, but not a whole lot of content yet. So I think if you just look at from a high-level the TV market, there's not really a killer feature or something like that's driving additional replacement cycles, and I think that as the pricing comes down on the 4K TVs, I think that could generate some additional demand here as we going to second half into next year. From our perspective whether it's an HD TV or 4K TVs it's essentially the same product from our end. It's really more advances on the display and on the processing side. Yes, our industrial business has been our fastest growing business and that's really centered around all of the IOT opportunities. If you look at the home automation, if you look at security, if you look at metering, a lot of those segments that have been very successful for us in Europe and the US, are classified industrial and that is now our largest market segment. So our mix has shifted from being more consumer and communications, to now being fairly well balanced between those three, with industrial taking the top place over communications at 35% here in Q2. We expect that the strength in industrial and automotive to continue as we move into the second half, and it's really driven by product cycles and design win momentum more than the health of the end market and the economy itself. So we're quite pleased. Although I think that some of the macro effects do our moderating our growth year as we move into Q3, but overall that's been driven by product cycles and market share gains. Yes, this is <UNK>. So our model range for gross margins zooming out is 59% to 61%, and where we end up within that model will depend on the product mix in any given quarter. So clearly when the Broadcast consumer is doing better that puts a little more pressure on margin, then higher market products like Infrastructure are running fast that increases our margins a bit. If you look at our September guide for IOT and Infrastructure, you know we've just come off some very strong run on year-on-year growth of 35%, and strong shipments in Q2 hitting a record---+a strong record with those products. And so whether the Q2 number or the Q3 number is being flat, or whether we are being conservative, or if you know, I think just looking at the end-user demand and the consumer demand, I think it's taking a bit of a pause. It's not at all related to design wins traction or share gains. I believe that you just really have to look at it on a year-on-year basis and just look at the string of records that we've had. I think that there's nothing in the---+ really if you look at the design win traction, it's increasing among all of those applications. So whether consumer demand or what's going on there in terms of the near term quarterly FX, not sure exactly what to read into that. In terms of Infrastructure, again we do not have a strong exposure to the wireless market. I know you've seen a lot of companies talk about you know serious reductions in shipments in base stations, especially in China. We do not participate directly in those. It does have an effect on the core network deployments, but I think that the strength in cloud and in data centers and in the overall backbone networks. You look at the CapEx spending. It is holding in there, and I think that's also laid on top of the fact that we've had record design performance at our Infrastructure businesses over the last couple of years, and so those programs are starting to come online and probably negating some of the macro effects that we're seeing. Hey <UNK>. This is <UNK>. There is some benefit to that, that's true. We have incorporated that in our planning for this year and those effects are included in our guidance, and that was true both at the beginning of the year with the 9% call and today with the 7% call. So, it's a valid observation and that is incorporated in our numbers. The IOT solutions that you are referring to really are our next generation Gecko platform. So to address the IOT market, it's a broad market, and you have to have a complete portfolio of products addressing a broad range of standards, a broad range of functionality in micro controllers. And so we are building our next-generation platform to be able to serve all of those. To spin out a lot of different parts. And our next gen part has been sampling since Q1. We have over 30 alpha customers in active development within all of the various wireless standards; ZigBee, Thread, Bluetooth Smart, as well as MCU functionality. These are single-chip solutions that are highly differentiated in terms of low power performance, in terms of multi-mode capability, dual band capability, and so really it takes the performance of connectivity and the power consumption and integration into the next level, reducing materials cost. In the second half we're going to be launching modules around that solution, around Bluetooth Smart and other standards. And we're going to be launching our single-chip solution out into the market more broadly. But today we are sampling that with a wide range of customers, and working through the initial product development cycles with that. But we believe that platform, that first chip, and you know all of the chips that are going to follow as we move into next year, are going to be a critical growth driver for the Company, as well as a really important component of those of the rollout of IOT. Low power, integration, costs, all of those things are going to be important. As these applications, you know, start to gain traction in the market and get deployed. So this level of integration, this level of power is going to be really revolutionary and transformational in the market. In our view. Yes <UNK>, we are continuing to hire in certain areas, particularly in the software development expertise, and we also have our new college graduate recruiting program that has had another year of successful recruiting progress. So while the first half headcount growth was a bit slower than what we anticipated, we are continuing to ramp heads in a few areas, to resource these critical programs that we need for IOT success long term. No, we're not seeing any inventory pulled down. We see strength in our 8-bit business, we see strong design win activity going on in our EFM8 solution, we continue to invest in the 8-bit area and are launching new products in that area. So, we believe that we are in share-gain mode with 8 bit and view that as an important driver of the microcontroller business at the low end. So no, we don't see an inventory issue at all. In fact fairly healthy metrics and that. Raj, your observation is spot on. This is been a very strange year from a seasonality point of view with a significant uptick in revenue in Q1 from the Broadcast business category, which is highly unusual and now a third quarter guide down for Broadcast, which is also highly unusual, so it has skewed the character of the year significantly. I also believe that if you look at our peer group and the guidance that we have been experiencing throughout this earnings season, many participants in broad-base markets are showing macro weaknesses in second half that is significantly impacted by the third quarter guides, and we are not immune to that type of activity. So, I think we are seeing an exacerbation in the third quarter from both the Broadcast dynamic around TV consumer demand and a general macro slowdown that's affecting all of our product lines. The big question for us is what will our fourth quarter turn out to be. And you know we are not able to give you a clear understanding of that today. I think by the time we get to the October call, we will know whether these TV OEMs have begun to resume more normal quarterly patterns and that business starts to recover. I think incrementally to all of this discussion about IOT guide for the third quarter, we would expect that business to continue to expand into fourth quarter and we would believe that IOT and Infrastructure will have good 4Q's and continue solid momentum going into 2016. But to summarize, this has been a highly unusual calendar year from a seasonality point of view, and we would expect to return to more normal trends and conditions next year. So Google is an important partner for us, and I believe that the drive to standardization, the way devices talk to one another, is of critical importance to the rollout of IOT. You've got a lot of different players building incompatible solutions and trying to stake out their claim, and I think that there is a coming shakeout of those players in standards, we've seen moves by Qualcomm into the Thread group, which is an important group at Google, and that's initiative together with us an ARM and Freescale. That is the networking layer which basically takes ZigBee and turns it into an IP-based low-power mesh network. Think of it as a Wi-Fi for the IOT. The Wi-Fi's application layer is essentially the language the devices can use to talk among themselves. You also have ZigBee, as an important application layer. You also have Home Kit to a degree. So, there are a variety of application layers that run on top of the networking layer, and I believe that there's going to be three or four major ways the devices will talk to one another, and those standards are all coming forward and shaking out right now. But the introduction of Thread---+don't underestimate that, it is going to be a huge deal and the fact that we can get all of these IOT devices with an IP address and talking to one another, and talking over the Internet directly, allows these application layers to span across all of the various networking. Whether it's a wired network over ethernet, or Wi-Fi, or over Thread, and that's going to improve the interoperability of using Google and Silicon Labs, and ARM, and others, and now Qualcomm are all really pointed in the same direction that is the right way of connecting these devices, and the importance imperative of the low-power standard like Thread compared to Wi-Fi. If you are going to battery-power a lot of these nodes, which I believe the majority of the nodes in IOT are going to not have a wire, you have to have a low-power standard, and these new standards like Thread are going to be critically important. We're starting to see the companies coalesce around this and we will see how that plays out in 2016. It's very exciting for us moving forward.

2015_SLAB

2016

ABCB

ABCB #Outside of ---+ somewhat, yes. Our footprint really goes to just down south to Ocala, but we've hired some producers in Tampa. We are doing something in Charlotte. We would look close ---+ let me say, close to the footprint. I don't think you'll see us in Boston, or out west in Dallas, or San Francisco, but close to our footprint in Southern states, I believe we would be willing to do that. We finished with 10 SBA bankers, and we're looking to get that to 15, and so the idea that we might have to go a little further out of our footprint, like I was saying, I think we're okay with doing that. I would point out that we're still well within the guideline number and I think, <UNK>, it was 207% at the end of the quarter CRE. So from the standpoint of concentrations, we've managed to well within the guidance. So overall, the risk profile is not what it was in our bank in the last downturn. And C&D was less than two-thirds of the guidance. So from a macro level, we're in a really good place, if we wanted to get more aggressive in a particular market, or with an M&A target that was concentrated, we have the flexibility and the leeway to do that. I think ---+ I don't know that we've seen any signs of a particular market we're in, that alarms us. Clearly, there's segments within the market that we see overheated, and that we've avoided, and that would vary by market, but we've also seen ---+ and multi-housing is one of them. But we've also seen a couple of those deals that ---+ and markets that made us pretty excited. So overall, we're in a really good place. We don't see any market that's a big concern at this point, with our portfolio. Generally, I don't know, it's just trends in NSFs and debit interchange. A lot of times we actually even see third-quarter debit interchange higher than the fourth quarter, when you think there would be more transactions. But for us, generally, the third quarter's been our highest quarter. This quarter, we did change, and we mentioned it in the press release, we tweaked a few service charge routines, and that's what drove service charges a little higher. We made a comment before about what that was, and that was, we initiated a small service charge for paper statements. And so I think over the next couple quarters, that might trend a little lower, as those customers select online banking, and don't select the paper charge. But for now, that's what drove that a little. That's what drove that in the third quarter. The dollar level should stay flat, maybe move up a hair, but not enough to drive anything. In that the source of liquidity would be the mortgage pool, versus securities. Probably $200 million a year is a good assumption. That's correct. Of what's closed but not sold. I don't think ---+ it's not half. I've been ---+ for <UNK>, I mean, my reports to <UNK> on that have shown us about 40% of that going away. Of course we think ---+ and obviously, <UNK>, we obviously think we can grow that between here and $10 billion, so the effect is probably ---+ dollar-wise will be more, but just looking at today's dollars, it should be about 40%. Yes. All right. Thanks again for everyone that has joined. If you have any questions or comments, <UNK> and I both are available, e-mail or telephone. Thanks, and have a great week.

2016_ABCB

2017

OXY

OXY #That's a good question. I don't think we've baked a whole lot of that improvement in in the forward look, so I think there's upside potential. Our type curves represent the production from full-section development. Your first wells may be better than the last well on a section. So our type curves are based on the average and that forward look is based on the average. So throughout this year, just like we did last year, we expect continued improvement in both cost and well productivity. So, I think there's upside to that production plot, both from a pace standpoint, number of wells you drill per rig line, and productivity. At $60 or $70 oil, things change fairly significantly based on what ---+ the numbers we gave you on our sensitivity around oil prices obviously. But keep in mind that what we said was that there's a lot of flexibility in the capital program, as <UNK> pointed out. We will sort of see how things go in terms of commodity prices through the year. Obviously, we would be more encouraged to maybe spend a little bit more money at the higher end of the range, better prices. So we will just sort of see how things go. We gave you all sorts of points in terms of cash flow changes and deltas from the different business segments, so I think I have a high degree of confidence in your modeling ability, so you should probably be able to come to some sense of what's going on. The Permian business as a whole, as I mentioned, generated quite a bit of free cash flow, and Permian EOR is sort of there largely to harvest the free cash flow to redeploy into Permian Resources. So, on the cash neutrality, it could sort of be whatever you want it to be. We were under $50 WTI in the fourth quarter. We are spending ---+ so you're almost there now if you wanted to spend lower amounts of capital and to sort of keep production flat, but it's largely dependent on how much you would like to grow. And we think we have a lot of opportunities, as <UNK> pointed out, 11,650 places to park the money so ---+ at good returns. So I think that is the best way to frame it. As I said previously, we are continuing to look at our opportunities to monetize things where it makes sense, where we think that would increase the net present value for our shareholders. While we are not prepared to talk about specific assets today, we will continue that process. And as we make decisions, certainly we will share that with you, but it's something that we think about and evaluate pretty much on an ongoing basis. So, the operated versus nonoperated in that kind of core 300,000, you can kind of think 75% to 80% operating kind of position there. With regard to the longer laterals, that's been a great effort by our business unit and our land organization to continue to core up, so doing swaps, doing trades, picking up pieces of acreage to drive that lateral length longer. So, I expect us to continue to do that. The majority of our wells will be longer laterals. That's just an average of the whole inventory. Technically, there's not a problem. 10,000 early on in horizontal development was a bit of a challenge. 10,000 is no longer a challenge. We are looking at even the option of 15,000 now. The bulk of the development this year will be 7,500 foot or 10,000 foot laterals. If we have to drill a 4,500 foot lateral, it's because we've already developed or started developing a section that way, and we really can't change. So most of our wells will be the longer version. On the 350,000 acres we are delineating, it's really multiple things. We are drilling appraisal wells on our own acreage. We are evaluating 3D seismic. Again, those two equivalent nonoperated rigs really are six to eight actual rigs in any day of the year. So we get a lot of information from that nonoperated position that helps derisk, plus just watching what other competitors do offset of this acreage. So, with regard to acquisition, it's going to be a function of what we think about that acreage, what the current position is, what trade opportunities there are to core up before you go down the acquisition path. No, we provided the delta of the free cash flow that we expect in some of the pieces of the business based on prior investments that we've made that are now completed, so there's, to some extent, that, specifically around chemicals. The Permian, a lot of that is driven by the production growth and the volume improvements that we've seen at good returns. And part of it obviously in oil and gas is some view around a little bit better price, but not much. And going forward, I would tell you that not sort of ---+ we started the year with $2.2 billion of cash, and the capital program remains quite flexible, so we will sort of see how it goes as far as the spending. But again, the number one priority, as <UNK> said, right after maintenance, is really to continue to be able to fund and grow the dividend over time based on our ability to grow volumes. So, we do believe there will be inflation pressure. And you mentioned pumping service. That's probably one of the areas where you will see it the strongest. But to counter that, we are really working two approaches. One is to continue to get better technically, some innovations that are happening in the drilling space and in the completion. We can drill our wells faster and better over time. That will help offset that inflation pressure. But on the commercial side, we are working very closely with a group of suppliers to create the ability for them to have greater margins without just price increase ---+ more efficiency, better utilization, better logistics management. And so we think the combination of those two things can hold our overall well cost flat or continue to improve it. We will have to see how conditions look in the second half of the year, but, currently, our plan would be not to increase our capital for this year but to go with the plan that we have in place and to look at what our program next year would look like. But it really is going to depend on how we feel about oil prices.

2017_OXY

2017

SPXC

SPXC #Sure. Let me take a crack at that. I would say first of all, with the transformer team, I think the work that has been done there has been very, very impressive. I think that team beat all of our expectations in terms of the pace of the implementation of the improvement initiatives. So, where we sit today, transformers ---+ we are in a very strong competitive position, we're a leader in a medium-size power transformers with a very strong competitive position. As we have improved that business to where this business is generating very nice returns in a very competitive environment, so we're talking 12% to 13% EBITDA returns where there is overcapacity in the market, we are now shifting gears towards growth. And we do think there is some interesting opportunity there, and I think you have talked of a couple of them. While we have a very strong market position in our medium-voltage power, we are a smaller and a newer player in the high-voltage power, and that's an area that we see some opportunities for growth. I would say that one area we have to keep an eye on there is a lot of the competitors in that market are overseas, and the very strong dollar has been a little bit of a headwind there and has impacted some pricing pressure in that portion of the market. As a reminder, that is a very small portion of our business. That is maybe 10% to 12% of our overall revenue in that business. But we actually do think it is a very nice opportunity for growth. And then I think some of the other areas that you highlighted, we do have a very nice load tap changer which we think could help us on our OEM business, on our service business, and can even be an opportunity on component sales. That is something that we are working with the business on. We are also looking at service. So, actually at this very moment, we have a growth strategy underway with the transformer business to really lay out the growth plan because really the first two years of the team has been focused on improvement. Now the business is healthy, generating a lot of shareholder value. We are shifting towards a lot more growth there. So we think there is some nice opportunity there. We do see a little bit of headwinds on foreign exchange rates on the EHB side, but we actually think that is a really good business, with a really strong market position, and we think there is some interesting growth opportunities. I think that is something ---+ as we shift gears as a Company towards more reshaping the portfolio, towards growth, this is something we are going to talk about in more detail in a week in our investor day. We will try to put a little more information in there as well. Thank you. Well, we don't get into the individual business growth rates. As I said a little bit earlier, if you look at the run rate side of the business, put it more around a global GDP type of a growth rate, we are seeing good strong growth out of transportation and the remaining part of the communication technology that is more project oriented, that is where we are seeing the project delays, so flattish. And, as a reminder, more of the run-rate business of that segment is about two-thirds of the overall segment. We're seeing very steady growth there. On the project side, which is always a little bit lumpier, we'll see some growth there driven more by transportation. I think the way we were looking at where we are now we feel good about the Company and the composition of the Company. As I said in my prepared remarks, we're going to focus all of our businesses on getting returns above our cost of capital. And so as long as everyone is contributing above the cost of capital ---+ or in line of sight to being able to achieve that, then we will be stable. And if not, we will look at other alternatives. Thanks. Thanks, Michelle, and thanks to all of you for joining us. We hopefully look forward to seeing many of you at our investor day on March 6 in New York. Thank you.

2017_SPXC

2017

CSCO

CSCO #Thanks, <UNK> So I'll start with an overview of our financial results for the quarter, followed by some comments about our capital allocation and the Q3 outlook Overall, Q2 was a solid quarter with revenue of $11.6 billion, down 2%, and non-GAAP EPS of $0.57, flat year-over-year We continued to make progress on our strategic growth priorities while maintaining rigorous discipline on profitability and cash generation As part of our strategy to drive long-term profitable growth, we're prioritizing key investments, both organically and inorganically, such as the intended acquisition of AppDynamics Today our board approved an increase of $0.03 to the quarterly dividend, bringing it to $0.29 per share, a 12% increase, representing a yield of approximately 3.5% on today's closing price We remain firmly committed to our capital allocation strategy and returning value to our shareholders Let me provide some more details on our revenue breakdown Total product revenue was down 4% and let me walk through each of the product areas Switching declined 5%, driven by weakness in Campus partially offset by strength in the ACI portfolio, which was up 28% Routing was down 10%, although we did see growth in orders Collaboration grew 4% driven by ongoing solid performance of WebEx, unified communications and TelePresence We saw good momentum again in the transition to subscriptions and SaaS offers with deferred revenue growing 14% Data center declined 4%, impacted by the continued market shift from blade to rack, though last week we announced expansion of our UCS portfolio by offering the Microsoft Azure stack on UCS via an integrated validated system that enabled organizations to deliver Microsoft Azure services from their on-premise data centers The joint Cisco and Microsoft solution provides the tools for enterprises to grow and modernize their applications in a highly flexible and scalable hybrid cloud environment Wireless grew 3%, with ongoing strength in Meraki and the continued ramp of our 11ac Wave 2 portfolio Security grew 14% with deferred revenue growth of 45%, as we offer more solutions to customers with increasing software content that result in greater recurring revenue We had very strong performance in our advanced threat security of 65% as well as strength in unified threat management and web security solutions Our focus continues to be developing a best-of-breed portfolio while offering customers the benefit of deep architectural integration spanning the network cloud at endpoint which we believe is outpacing our competitors Services continues to execute well, growing 5% with a strong focus on renewals and attach rates Overall, we drove 13% growth in total deferred revenue with product up 19% and services up 9% We continued to build our product deferred revenue related to recurring software and subscription businesses to $4 billion, up 51% We made good progress on increasing our recurring revenue, with 31% of our total Q2 revenue generated from recurring offers, up from 28% a year ago In terms of orders, total product orders growth was flat with book-to-bill greater than 1. Let's take a look at our geographies, which is a primary way we run the business We're seeing continued strength in the Americas which grew 4% EMEA was down 4% and APJC was down 5% Total emerging markets declined 7% with the BRICs plus Mexico down 5% In terms of customer segments, enterprise grew 1%, commercial grew 3%, public was down 6%, public sector was down 6% and service provider declined 1% From a non-GAAP profitability perspective, total gross margin was 64.1%, down slightly by 0.1 points Our product gross margin was 62.4%, down 0.9 points and service gross margin was 68.8%, growing 2.1 points Operating margin was solid at 31% We're maintaining our discipline and driving productivity with an ongoing focus of cost improvements and operational efficiencies, making the necessary trade-offs to drive operating margin At the bottom line, we delivered non-GAAP EPS of $0.57 and GAAP EPS of $0.47. We delivered operating cash flow of $3.8 billion and ended Q2 with total cash, cash equivalents and investments of $71.8 billion with $9.6 billion available in the U.S From a capital allocation perspective, we returned $2.3 billion to shareholders during the quarter that included $1 billion for share repurchases and $1.3 billion for a quarterly dividend To summarize, we had solid performance in Q2 and managed the business well We're making the investments we need to deliver shareholder value over the long term, and we are being very disciplined in driving continuous cost efficiencies Let me now reiterate our guidance for the third quarter This guidance includes the type of forward-looking information that <UNK> referred to earlier As a reminder, the third quarter of last year included an extra week, which resulted in higher revenue of $265 million and higher non-GAAP cost of sales and operating expenses of $150 million, netting into $115 million of non-GAAP operating income The guidance for the third quarter is as follows We expect revenue in the range of minus 2% to 0% year-over-year We anticipate the non-GAAP gross margin rate to be in the range of 63% to 64% The non-GAAP operating margin rate is expected to be the range of 29% to 30%, and the non-GAAP tax provision rate is expected to be 22% Non-GAAP earnings per share is expected to range from $0.57 to $0.59. My guidance does not reflect any impact from AppDynamics I will now turn it back to <UNK> for some closing comments No, I think just to add to that, I think we do feel good about what we're seeing from macro in the U.S certainly, and in commercial and enterprise And I'd say to your point, <UNK>, when you do adjust for that extra week last year, our guide, we always call it like we see it And it does show a bit of improvement there on both the top line and bottom line So I think – like <UNK> said, I think the U.S is solid, and again we're still cautious on outside the U.S and Europe and Asia No, yeah, I think what I say is between 1% and 2%, right So we're in that 1.5% to 2% range Well again, as we continue to accelerate the growth, as we're continuing to grow it like we have been growing it, I referred it may get even more until it evens out, but in the last few quarters it has been in that range Yeah, we don't share gross margins by business unit, but I can tell you, the margins are growing in our security portfolio overall between the mix of the growth in these areas and the acquisitions and the SaaS businesses we've been adding So it's very accretive to the Cisco average Hi, <UNK> Yeah, that's a great question, <UNK> So actually product as a percentage of my total product revenue, it's up to 10% now this quarter for the first time, so we're happy about that And we are trying to make that shift in the core part of the business Cisco ONE is an example of where we are taking our ELAs and our big cross enterprise ELAs that really are a core networking business to do that So we're trying to find ways to find other offers I'll just point to another example though like the Spark Board that <UNK> mentioned It's a great new innovation and extension of TelePresence, but it's a great example of where we're selling that We used to sell it always as a system Now we're selling the equipment, but we're selling it with a subscription So that's an example of how we've been able to kind of to drive new offers that had been traditionally just pure system or hardware And again, the teams are driving hard to find more ways to accelerate new offers that way Thank you Yeah, on the deferred, <UNK>, I mean that is part of why we're trying to make this shift to software It's our customers want those offers and to have easier way to run their IT departments But it clearly enables us to get higher margins, for sure And it's not only just the gross margin coming out of deferred revenue, but we're looking at our whole end-to-end operations, and how we go to market, how we drive operations in the back end here And there's real opportunities to drive both gross margins and operating margins So that's why we're so focused on it That's why we're looking at acquisitions to add to it, and it will continue to help improve our mix on the margins line I'll take that one, and a great question Gross margins, we've been – again continue to operate well I'll say there were two specific kind of headwinds that we faced this quarter And to your point on APJC, I'll refer back to a year ago, we were benefiting from a national program in China where they were rolling out set-top boxes to tier 2 and tier 3 cities Not our set-top boxes, but we were providing the smartcards to go with that, which they're basically for secure access and it was very, very high margin So we had, if you go back a year ago, SP video in Asia was extremely strong because of that That program has dramatically slowed down And again, that pure margin just isn't there anymore, and you're seeing that flow through both the margins and the year-over-year revenues for both SP video and APJC The other item that's a headwind for us this quarter is we are facing a significant cost increase to our memory costs, our DRAM memory costs that we're paying It's a very tight supply right now and we're seeing dramatic increases there So that's hurting us quite a bit as well But other than that, I'd say the color's in the same line Our pricing is in – it's in the ranges that we've been the last six to eight quarters I'd say a little on the higher end, but in line with where we were Q3, Q4. A little worse in (37:06) last quarter, but we were very low last quarter So in the normal ranges But really it's those two specific things And I will say that I do anticipate those two headwinds to remain there next quarter as well as we had very strong SP video, that China program, in Q3 as well I'll start on the supplier component issue So yeah, those articles are out there We have had an issue from a supplier come out, and we did book a reserve for $125 million, you can see in our GAAP results and in the press release, to cover that We always, and continue to stand by our customers through any situations like this This is very proactive This is a failure rate that will happen over time, but we're working with our customers to work through that So we're not anticipating any impact from that from a top line perspective Sure, so yeah So that 51% growth is year-over-year growth of over $1.3 billion and everything's growing in that space I'd say from a pure size, collaboration and security and Meraki are the biggest pieces of that, because they have just continued to grow their businesses significantly And they're all growing huge double digits But I will also say my switching, my routing, as well as data center and we've done Cisco ONE bundles as well as big enterprise license agreements They've also been growing huge double digits as well So at the end of the day, the year-over-year increase is across the board Everything is up massively to drive to that 51% And again, just the biggest chunk of it between collaboration, security and wireless, they are two-thirds I'd say of the balance, but the other pieces are rapidly - Yeah, wireless being Meraki, yes Hopefully that gives you the color you're looking for Not as of right now Again, we're working very proactively with our customers and in terms of how quickly and where they want to do their replacement So we're working very, very closely, but as of right now we have not seen and don't anticipate any massive revenue impact from this

2017_CSCO

2016

CRAY

CRAY #Yes. So on the BGQ, Blue Gene/Q systems out there from IBM, not much decisions made in the quarter with those. In fact, I don't think any of those made decisions in the quarter. But there's clearly activity going on at virtually every one of those sites right now. And I would expect some of that business in 2016 and 2017. As we mentioned in the last quarter call, we're seeing a little bit more extension of those systems than we were originally expecting. But I think we're seeing that a little bit in general where people are holding on to their systems a little bit longer and buying a larger system at the end of that. We're seeing that really across the board. But right now we feel really well positioned for not only that IBM Blue Gene opportunities, but also the iDataPlex opportunities as those moved over to Lenovo and we continue to be engaged with those customers. Yes, <UNK>. So I think I know the company that you're referring to. But the way that I would put it is, we did see a slower ramp in the first quarter and we didn't see a lot of other decisions being made. So it wasn't that we lost a lot of business in the first quarter or anything. It was really just a lot of ---+ there wasn't that many decisions being made. I think the other company that you're mentioning saw very specific weakness within one government agency. I don't think we saw that same thing. I think that that's probably not an agency that we do that much work in. But I think the general ---+ we just didn't see as many people making final decisions on purchasing in the first quarter as we typically do in the start of the year. And it's important, just like everything else in our business, it is pretty variable. So you can go from feast to famine. And even if you went back to last year and the year before, we had some monstrous quarters and orders, and we had some quarters that wouldn't have been so high. And it's just a lot of timing of when certain procurements come to a head. We're still planning for it being operational in 2017, the new manufacturing facility in Chippewa Falls. We just got clearance on the land, and so we're working toward breaking ground here this quarter. Yes, that's a great question. It's interesting, because as we've kind of come out and evolved in this whole big data analytics space, I think the space itself is evolving. I was just talking to a customer in this area yesterday and he was telling me that the tools that they are now using are completely different than the tools that they were even using six months ago. So it's really important these days, because the space is evolving so quickly, that you have to be able to evolve with that space. And I think with the whole machine learning and deep learning coming into the big data space, that's even more aligned with more traditional kind of HPC or supercomputing style work that we're very familiar with. And so we are continuing to see this convergence between supercomputing and data analytics as we go forward. With our specific product that you mentioned around Urika, we have the Urika-GD system, which is for graph analytic, and our XA system, which is for basically advanced analytics, doing more Hadoop or Spark style analytics. And what we've seen more and more is customers starting ---+ you know, we're going after the high end of the market, as you can imagine. We're focused on leveraging our performance and our speed and capability to give those customers that need that capability a unique offering in that space. And while we've had a number of successes, one of the things that we're really starting to see is this kind of evolution of the software infrastructure and tools that's really evolving very quickly in the space. I mentioned that we have a new offering, both in the big data analytics space and storage space coming out later this year. And so that's something that we're really excited about. And I think as we start to get this convergence in the market we're starting to understand how to best supply our technologies into that market space and move forward. So we're not seeing too much yet, but kind of watch the space on that one. But I do think that over the ---+ that this whole big data area is going to start to ramp up a little bit for us over the next few years. Yes. <UNK>, thanks. That's a great question. So I would put them in two completely different buckets. So I think one set of issues is around the components and the technology delays that we talked about. And then the second is around orders. So I'd put those in two separate areas. There's a little bit of connection between those overall because a lot of people like to see the technology play out and be able to test on it before they make a business decision. But, I really would say that they're in pretty separate buckets overall. When we look at the component delays, as I mentioned, kind of all three of the processors that we've been focused on are moving to the right of our schedules. And we're pretty much through that with Broadwell now. We still have more work to go with Knights Landing which is the second one that's up. And then, the Pascal processor later on this year, the NVIDIA P100. On the orders, that's a separate issue. So I just want to keep ---+ I would say, <UNK>, they're not really connected. Yes. So, we've seen, for instance, in certain of our market segments we've seen some changes. So for instance in the commercial segment, the energy market is our biggest segment there. And clearly with the situation with oil and gas customers, we saw a pretty major slowdown in that segment in the first quarter. We are engaged across the segment, so there's a lot of discussions and we're very hopeful of still doing good business in that segment this year. But it's not clear if that's going to return this year or not. And I think that that's something that kind of goes toward something that's going on out there in the market that's well beyond Cray, but that is impacting Cray overall. On the government side of the market, I would say that we're not seeing anything specific. We've just seen a number of procurements that we were expecting were going to close first quarter that just didn't complete and were extended for various reasons. But we're not seeing a specific reason, like, budgets or not getting out there or people slowing things down for a specific maybe technology issue or something. We just saw kind of a general slowing across the board. And I think we would say we saw that pretty much around the world, not just in the US. So I think it's a combination of things. And, like I said, I think the way to track it is to really look at kind of our next quarter number, because that's really where we're going to have a much stronger headlight into the remainder of the year and where we'll be. So these next few months are big for us to try and close some deals and get the order book up. I think on each deal we do the margins differ. It isn't consistent on deals. So we just had a good mix this last quarter of the orders that came in, a relatively small sample that had a bit of above-average margins there. We are working to improve margins. They weren't the b- ---+ where we wanted them to be last year. But I think that as we view it today, first quarter was an aberration on the positive side, on a small sample size. My sense is it hasn't changed significantly there in the environment. And because we didn't have tons of activity, I wouldn't say we had a huge sample size. But I don't think the environment for pricing has changed in a significant way. It's competitive, particularly when you are selling cluster systems that are less differentiated in the market. Thank you. We're off to a good start to the year. Our competitive position is very strong and we're gaining momentum in each of the markets we compete in. Thank you all for joining the call today and for your continued support of Cray. Have a great evening. Thank you, everyone.

2016_CRAY

2016

HVT

HVT #Thank you and good morning, everyone. During this first-quarter (sic) conference call, we will make forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made, in which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the Company's reports filed with the SEC. Our President, CEO, and Chairman, <UNK> <UNK>, will now give you an update on our results and progress. <UNK>. Good morning. Thanks for joining us on our second-quarter conference call. As previously reported, net sales and comparable-store sales rose 3.8% for the quarter. Written total and comparable-store sales both rose 6%. Our average ticket increased by 2.2%. Traffic was slightly lower, but we were encouraged by our improved closing rate for the quarter and year to date. Earnings for the second quarter were $0.24, compared to $0.21 for the same period last year. For the first half, earnings per share were $0.45, compared to $0.48 last year. We did see our SG&A increase as a percent of sales to 49.6%, compared to 49.4% last year. These increases were largely due to higher administrative costs related to increased health care costs, selling expense, and occupancy related to new stores that have opened in the last year. Both written and delivered sales for Q3 to date are up 3.8%, with comparable-store delivered sales up 3.9% and written comp sales up 3.6%. This year, we have made heavy investments in the systems and the infrastructure to help provide a better experience for our customers. The major hardware computer additions that our CIO, Ed Clary, and his dedicated team installed this spring with upgrades to the leading-edge IBM POWER8 has helped to cut the screen speed when placing orders in our stores by over half. The purpose of these upgrades is to help serve all of our customers in every phase of the shopping cycle, including the processing and handling of the product through delivery. We have added new state-of-the-art scanners for all of our drivers and service technicians to provide a paperless system and to speed up every stage of handling merchandise through completion of our Top Drawer Delivery process. We recently had over 100 of our vendors and freight carriers into Atlanta for a supply-chain partner summit to bring all of our partners up to speed on the installation of our new GT Nexus system and their expected commitment to our mutual success. This program ties all of our partners involved in the manufacture and movement of import merchandise from preproduction, manufacturing, Havertys dedicated quality teams, ocean transport shipping lines, and domestic freight lines all on one single platform. Every partner will have the necessary visibility throughout the entire process so that our supply-chain team will have a much tighter timetable for product arrival and guaranteeing the delivery time for our customers. We have developed with our VP of Supply Chain, Abir Thakurta, and his team what is recognized to be one of the finest supply-chain organizations in our industry. We continue to invest in the systems to make sure that we can provide the top service that our customers expect and to outperform and outservice our competition. In early July, we celebrated the grand opening of our 110,000-square-foot expansion of our Lakeland, Florida, distribution center. This high-racked addition will add 85% more storage capacity for the facility, which will alter and improve how we serve our Florida stores and customers. We will be bringing in containers from Asia directly into the Lakeland facility from the port of Jacksonville and Tampa, greatly reducing the inbound freight compared to moving containers today from Savannah to north Georgia, then shipping them back to Lakeland. Another advantage, a major advantage, is reducing the handling of the furniture, which can cause damage and delay deliveries. We will be able to react quicker to delivery issues and eliminate days to deliver to the customer. This expansion is the major capital investment for the Company this year, along with the large information technology upgrades. In the next few months, we plan to open in two important markets within our distribution footprint and complementary to existing stores. We opened in a new Texas market, College Station, which will be a sister store to Waco, and both are important college-town markets. These two cities are in a common media market, which will help us make an efficient advertising impact in both markets. Early in the fourth quarter, we will open in Charlottesville, Virginia, a new city for Havertys. It will be a branch store of our two-store Richmond, Virginia, operation. These cities are also operating in the same MSA media market, which will add to our impact in the region. The Charlottesville store will serve another important college town in our footprint. We have historically done well in these markets and expect these two new stores to have a short development cycle. We are in the final stage of closing a store in southeast Florida, which overlaps with our new Fort Lauderdale and Coconut Creek stores recently opened. This is a higher-rent location, which we expect, once closed, will help us add to the market's profitability. We expect to end the year 2016 with 123 stores and 4.4 million square feet of retail space, our third consecutive year of slight increases in retail square footage. Our ongoing goal is to improve our existing store sales to over the $200 per square foot number that we reached in 2006, prior to the deep recession. We are closing in on that target and expect to reach it in the near future. We were pleased to return to our stockholders over $25 million in dividend and share repurchases in the first half and expect to generate significant cash flow for the rest of the year and for 2017. We continue to see a significant increase in the Internet written sales, which were up 40% in the second quarter and continue to run at an even higher rate in the third quarter. We are investing in improving the sales process and integrating a true omnichannel process to make it easy for the customer to transact business with Havertys in any manner she chooses. While close to 90% of our customers use our website at some point in the sales process, with mobile site use at 65% and increasing, less than 2% of our delivered sales are sold over the Internet. Technology aside, our customers generally want to visit our stores and speak with our sales associates and design expertise, in addition to physically trying out the furniture. We are increasing our efforts to make our digital 3D and online experience to be the best in the industry. We are excited about many of the new collections that we have coming to our floors this quarter. We are expanding our depth of selection in contemporary and clean line upholstery and adding multifunctional designs and technology to our motion upholstery category. We're adding several major groups to the important leather category, with more transitional styles, colors, and sectional presentations, which we expect to be major new winners on our floors. We have a large number of new wood collections in contemporary styles and reclaimed finishes, which are additions to some of our current best-selling groups. We're also adding a number of lighter finishes to our presentations, which are so important to today's customer. We believe that we will be in the best in-stock position for the important fall selling season that we've been in in several years. We continue to see growth in our special order and custom order sales. Our H Design organization has had a major impact on our sales team and in reaching and serving our customer in her home. We are developing more products for the design part of our business to improve our service to the customer and expect to continue to see those sales drive our average ticket. We are currently doing over 20% of our sales in the H Design category, up from 16% last year. We are on track to reach our goal of a 25% H Design run rate by the end of the year. We are pleased to see the positive trend of business after the slow start to the year in the first quarter. We are very encouraged by the several significant initiatives that we've put in place to better serve our customer and to grow our business. The recent positive news about home sales in our regions, along with our strong position in our markets, gives us real encouragement for a strong second half. I will now turn the call back over to <UNK>. Thank you, <UNK>. I will just make a few comments about our financial highlights from last night's earnings press release, and then we will take your questions. Within our SG&A, our fixed and discretionary type expenses were $61.4 million for the second quarter of 2016. That's $2.8 million above the $58.6 million recorded last year. As stated in the release, we estimate that the full-year total expense for this category will be approximately $252 million, which is about $1 million higher than our prior guidance. We expect that will translate into increases over the prior year for Q3 and Q4 of approximately $2.4 million to $2.5 million each quarter in this fixed and discretionary SG&A category. The increases are largely due to depreciation and occupancy costs for new and relocated and remodeled stores, for staffing increases and higher health and benefit expense, as well as inflation. Second-half sales are normally higher than the first half, so profitability should be impacted less by the fixed and discretionary cost increases in Q3 and Q4 than they were in the first half. In the health benefits area, although we do have more employees under coverage this year and newer prescription drugs are more expensive, the cost increases have mostly come from higher individual medical claims than in recent years. The Company is self-insured, but we have stop-loss insurance coverage both on an individual and aggregate basis. The variable-type costs within SG&A for the second quarter of 2016 were 18.2% of sales, the same as in last year's quarter, and full-year variable costs are also anticipated to run at the same rate as last year's 17.9%. Our weighted average square-foot changes by quarter for 2016, in the first quarter, we had 1.1% higher average square footage; second quarter, 0.5% higher over last year; the third quarter, we actually have a decrease, slight decrease, in square footage of 0.3%; and the fourth quarter, it will be a 0.7% increase year over year. So for the full year, the weighted average square footage change will be about 0.5%. The rest of the year, comp-store sales percent increase is likely to be very close to the total percent increase in sales, since the square-footage increase is fairly modest in the second half of the year. Our balance sheet for the six months ended June 30 versus the year-end, we had an increase in prepaid expenses of $9.8 million. That was due to higher payments for estimated income taxes this year and also maintenance agreements for new computer hardware. The increase in property equipment net was $8.7 million and is due to higher CapEx this year and also one additional leased property recorded on our balance sheet. Increase in customer deposits of $6.8 million as of 6/30, compared to 12/31, is based on the undelivered sales increase that is typically higher at June 30 than the annual low at 12/31. We also had a decrease in accrued liabilities of $7.5 million, and that's typical due to payments made for year-end accruals and income tax liabilities. Finally, the increase in lease obligation was $2.4 million. As I mentioned, one additional leased store was recorded on the balance sheet. The topic of our Lubbock store and the gain we had on the property that was destroyed ---+ severely damaged and destroyed, almost, in a blizzard that was on December 27, 2015, it was a better-than-average location for Havertys. We have very good insurance coverage at replacement value and business interruption is also included in that coverage. There was a $1.9 million gain recorded in the second quarter. Year over year for the first half, comparing that operation performance, there was about a $1 million negative operating profit swing that is reflected in lower sales gross margin and continuing expenses. So, we did have that in the regular part of the P&L, and the gain we had, again, was in other income. Over the next three quarters, the other income gain is likely to be an additional $2 million. Up to half of that is likely in the fourth quarter this year and the rest would be in early 2017. Rebuilding the new store on the same site will cost us approximately $4.3 million and most of that amount is included in our 2016 capital expenditure projection, with the rest of the spend in the first quarter of 2017. Operator, at this time we will take questions from the audience. We haven't had any major changes in the last year that I can ---+ we started a lot of this process of upgrading our product and the H Design. I think that's maturing. I think some of our product selection is hitting more to the customer. We are doing more special order and custom, which I think continues to grow. As far as parts of our territory, Texas is still a drag, particularly the west Texas, the oil part of the state, is a drag. Some of the other parts of the state are doing better, but overall, it is down. So I would say that the main difference is that we just are continuing on this upgrading plan and adding the kind of product that our customers are trying to ---+ that we like to our mix, and it is being a little bit more successful. We were up single digits, so it is not a major issue, but we are seeing some real positives that we are encouraged about. We do ---+ it is coming down and we do need to move more of it out. We have a plan to do that. We are running most of it through our clearance centers and we will be a little bit more aggressive on that in the next several months, but I think our plan is solid and we will get it to the position we want by the end of the year. It will take a while. It will be a slow ramp-up. We are moving product down there now that we couldn't before. They will be our best sellers to begin with. I think it will take a while for that to play out completely. The main thing that will give us within the next quarter or so is a quicker service to the customers there, so hopefully help us just serve the customer and grow our business in Florida quicker. I think the cost savings won't kick in for a while because it will take a while to offset those loads that we are bringing down from Braselton and the reduced freight, inbound freight, to come through the P&L. It's pretty promotional out there. You know that. We are ---+ consistent with what we did last year, we will be aggressive in a few different areas that we weren't before, but I don't see any major changes. I think it is all baked into what we are projecting here as far as the cost and the advertising mix that we have given in the past. It is less than 2%, but it is growing rapidly, so that shows you that it was a minimal number. It was like 1.5%. We are getting closer to 2%. So, it is growing; it will continue to grow. We are spending more money on digital advertising and trying to reach that customer better, but still most ---+ the great majority of our customers want to see the product in the store, and we encourage that. Thank you, Operator. We appreciate the participation and look forward to a good second half. Thank you for being in attendance.

2016_HVT

2017

ILMN

ILMN #Thank you, <UNK>, and good afternoon, everyone I'm pleased to report the Illumina team delivered a strong third quarter with revenue growing 18% year-over-year to $714 million With solid results across our portfolio, it is clear that Illumina is both enabling and accelerating the global adoption of sequencing applications At Illumina, our mission is to improve human health by unlocking the power of the genome, and our commitment to innovation, while clear across our portfolio, is most recently demonstrated with the launch of the NovaSeq system We believe NovaSeq is a transformative platform that enables existing sequencing customers to increase output and lower costs while, at the same time, lowering the barriers for new-to-sequencing customers Ultimately, our goal is to unlock the benefits of sequencing for as many people as possible With that in mind, we are very pleased with NovaSeq's performance since its launch in early January In total, we have shipped approximately 200 systems in the first three quarters of 2017, including more than 80 in the third quarter As expected, NovaSeq's shipments increased sequentially from last quarter, with shipments no longer constrained by manufacturing capacity With approximately 70 orders in the quarter, we ended Q3 with a backlog of more than 100 systems Going forward and as expected, backlog should start to trend downwards now that manufacturing constraints are behind us Overall, we are currently on track to significantly exceed the 2017 forecast we targeted at launch As expected, most of our third quarter NovaSeq orders came from existing HiSeq customers We are seeing robust demand from HiSeq customers upgrading their infrastructure, and are still in the early stages of the upgrade wave We remain confident that most of our 800 HiSeq customers will upgrade to NovaSeq to access its power, improved work flow and lower sequencing costs, especially with the introduction of the S4 and S1 flow cells Additionally, NextSeq will continue to be the go-to platform for a subset of HiSeq customers Moving to HiSeq X Many of our HiSeq X customers have ordered their first NovaSeqs to start validations in new projects It's worth noting that these very high volume customers will generally align their fleet transitions with the completion of existing projects As a result, we expect to continue to see strong NovaSeq uptake through the fourth quarter of 2017 into 2018 and beyond Additionally, we are seeing continued signs of elasticity with about one-third of NovaSeq orders in Q3 coming from new-to-Illumina sequencing are previously benchtop-only customers Examples include a children's hospital in North America that has purchased a NovaSeq to bring sequencing in-house, and an existing MiSeq and NextSeq customer that is moving to NovaSeq to begin providing exome sequencing and liquid biopsy tests We also saw a growing multi-unit NextSeq customer that is moving to NovaSeq to leverage the increased throughput on a system that occupies a smaller footprint overall, requires less FTE time and offers a lower cost per sample We therefore believe we are still in the earliest stages of a multiyear adoption cycle that extends well beyond our HiSeq customer population Moving to sequencing consumables, we continue to see strong adoption with growth of 14% year-over-year to $380 million The $42 million sequential growth in sequencing consumables represents the largest ever sequential dollar increase in our sequencing consumable business This was driven by growth in our installed base and strong NextSeq utilization, in addition to stronger-than-expected HiSeq consumables HiSeq consumables increased sequentially driven by a few of our large clinical commercial customers who are seeing growing sample volume Excluding this group of customers, HiSeq consumables declined Our expectation remains that HiSeq consumables will trend lower going forward given the transition to NovaSeq and NextSeq As expected, we saw a slight sequential pickup in HiSeq X consumables driven by translational studies and growth in China With the S4 flow cell now broadly available, we expect HiSeq X consumables to follow a similar trend to HiSeq consumables, with the decline to begin sometime in the coming quarters Moving to our benchtop portfolio, system shipments were essentially flat from the second quarter Our win rates remain stable and new-to-sequencing customers represented over half of NextSeq, MiniSeq and MiSeq placements Utilization was within each benchtop instrument's respective guidance range, except for a record NextSeq performance that exceeded the upper end of our range and was once again driven by production clinical customers In terms of new product launches, we delivered the new S4 flow cell to early-access customers as expected I'm pleased to share that feedback on initial runs at seven customer sites have been very positive with performance exceeding specifications Building on the S2 flow cell, the new S4 flow cell enables a lower price per sample compared to HiSeq X for customers in our highest tiers of utilization and is therefore ideally suited for high-intensity sequencing applications S4 is now commercially available We are also gearing up for the release of the NovaSeq Xp workflow and reagents This is the individually addressable lane workflow that we first announced back in April The device enables libraries to be loaded directly into each lane of the flow cell allowing customers to partition different libraries, projects, samples and applications We expect to begin beta testing in the coming weeks, ahead of a full commercial release expected before the end of the year The next flow cell we're working to add to the portfolio is the S1, which we now expect to bring to the market in the first quarter of 2018. The S1 is the lowest output flow cell for NovaSeq at 1 terabase per run or 500 gigabases per flow cell This is expected to be a very attractive upgrade option for HiSeq 2500 customers, including those who utilize the rapid run option The addition of S1 will nicely round out our flow cell portfolio, which can now accommodate data yields of between 500 gigabases and 6 terabases We have suspended plans for an S3 flow cell with an output of 4 terabases given strong customer preference to use S4 for high-output applications and either S1 or S2 for lower-output applications You may also recall that we had plans for a lower output and marginally lower cost NovaSeq system, the 5000, to run just the S1 and S2 flow cells Based on customer feedback and our experience over the last three quarters, we believe that the existing 6000 fully meets all customer needs in addition to enable greater flexibility to scale in the future without an additional capital purchase Consistent with our broader objective to streamline our product portfolio, we have therefore decided not to launch the NovaSeq 5000, instead focusing on the 6000. At Illumina, we strongly believe that sequencing offers the promise to transform lives and are encouraged to see sequencing continue its progress into clinical application In the third quarter, shipments to our clinical customers grew 35%, largely driven by our liquid biopsy customers More specifically, oncology testing shipment growth accelerated from last quarter The FDA's approval of KYMRIAH as the first immune cell therapy is, of course, a very exciting development for the field of oncology, opening a whole new world of possibility for gene and cell therapies Sequencing is an important enabler in the discovery of immunotherapies, and with approximately 1,000 immuno-oncology drugs and clinical trials in the U.S alone, Illumina is committed to supporting our customers as they endeavor to deliver new hope to cancer patients and their families Another important area for Illumina is rare and undiagnosed diseases, where patients, including newborns and their families, can find themselves on a multi-year odyssey searching for a diagnosis There are more than 7,000 genetic disorders that aren't well known enough to be routinely identified by physicians, but that can now be identified by genomic analysis The right diagnosis can reduce pain and enable earlier and potentially life-impacting or life-saving therapies It was, therefore, great to see UnitedHealthcare's recent decision to cover whole exome sequencing for the diagnosis or evaluation of genetic disorders in patients and their parents and siblings Starting on November 1, UnitedHealthcare will cover whole exome sequencing for patients where clinical presentation is nonspecific and does not fit a well-defined syndrome for which a specific or targeted gene test is available Once the UnitedHealthcare decision takes effect next week, more than 100 million lives will be covered for whole exome sequencing for rare and undiagnosed diseases in the U.S This compares to almost none a year ago Finally, in its first full quarter of availability following the CE-IVD release, our VeriSeq NIPT CE-IVD solution delivered another strong quarter, with the number of shipped samples and revenue almost doubling sequentially The product is performing well in competitive tenders and we added a sizable German customer during the quarter that will start ramping around the end of the year Moving back to the quarter, microarray revenue grew 27% to $121 million with continued momentum among our direct-to-consumer customers Helix formally launched in July, creating a completely new marketplace for emerging consumer genomics During the quarter, they added six new apps from four new partners, bringing the total number of products available to 26. At the same time, Helix is exploring new commercial avenues with a selection of products now available on amazon com and has teamed up with Illumina Accelerator to support innovative start-up companies working to create breakthrough DNA-driven products for consumers Before I hand the call over to <UNK>, I want to share with you a change in one of our leadership roles I'm happy to announce that <UNK> <UNK> has accepted the role of EVP of Strategy and Corporate <UNK>velopment responsible for corporate strategy, corporate and business development, government affairs and global infrastructure, including IT and facilities <UNK> has been an invaluable partner to me as Chief Administrative Officer and has hired some exceptional leaders, while helping our G&A functions develop in scale As a result of the change, our CFO, <UNK> <UNK>ad; General Council, Chuck Dadswell; and the new Chief People Officer, when hired, will report directly to me I'm looking forward to have <UNK> now focus on driving our strategy process and getting more deeply involved in key transactions, including our population sequencing efforts Finally, I'll highlight that Illumina Ventures raised $230 million for its first genomics-focused fund To-date, Illumina Ventures has made investments in seven early-stage companies in industries ranging from novel therapeutics, diagnostics and research tools to food security and synthetic biology With that, I'll hand the call over to <UNK> for a review of our quarterly financials <UNK>? Hi, <UNK>rik How are you? It's a modest delay and the team prioritized in this quarter of getting the Xp workflow and the S4 flow cell out And so, that continues And the team is currently working on it optimizing the S1 chemistries And so, we expect that to come out in Q1. Yeah So, for now, two quarters in a row, we've seen a good demand, a healthy demand, come from new to Illumina sequencing as well as benchtop only, and we've talked about the fact that it was about one-third of orders that came in for NovaSeq in these two quarters coming from that segment The majority, therefore, and just do the math, the majority did come from typically HiSeq customers and HiSeq X customers We are definitely seeing the beginning of the HiSeq upgrade wave In the last quarter, we talked about the fact that about 10% or just over 10% of the HiSeq customers have bought NovaSeqs We obviously added to that number in this quarter And we're starting to see X customers buy and validate their first NovaSeqs and start to think about the fleet replatforming Now that we've put S4 out, we expect to see more of those happening in the coming quarters And so, we expect to see more multi-unit orders come in now that we've put S4 out there In terms of the 5000 and the 6000, as you'll recall, <UNK>, typically, we do have sort of a lighter end version of most instruments we put out, right? So, we had the HiSeq 3000 and the 4000. We had the NextSeq 500 and the 550, and we fully expected that that would be the dynamic here with NovaSeq as well And what we found from talking to customers and our field force really sort of amplified that feedback back to the leadership team, is that in this case, there was a lot of demand for the 6000, so for the next platform to be the 6000 for our high throughput customers And there weren't a lot of customers asking for and certainly not waiting for the 5000. And so, what's playing out right now is that the choice our customers are having is if they want a high throughput instrument, they're looking at the 6000. Otherwise, they're looking at the NextSeq And so, as we think about the upgrade opportunity for HiSeqs, we expect the majority of them will go to NovaSeqs, but then, there'll be a number of them that opt to get one or more NextSeqs instead We haven't broken it out, but certainly, some of the anecdotal feedback I can share is that we're seeing sort of all of the above right now We are seeing customers that are new to sequencing getting into the game and are looking to do whole exomes or whole genomes An example of that would be a new to sequencing customer that we got out of the Middle East that bought NovaSeq to participate in the second phase of the Saudi whole genome project, for example, or the hospital that I talked about in North America that previously didn't do any of their sequencing in-house, and now, bought a NovaSeq so that they don't have to outsource the sequencing that they do We're seeing a customer out in Greater China, for example, that purchased NovaSeqs to support their collaboration with a genome alliance in that region In that case, there was genomes And then, we talked about what's playing out with rugged, rare and undiagnosed diseases, where there's reimbursement now for whole exome trio sequencing And so, hospitals that look to provide that will be looking at potentially NovaSeqs to do exomes And so, at this point, it's too early to break it out specifically, but we're seeing all of the above We're seeing people getting into from panels to exomes We're seeing exomes to genomes, new to genomes And then, we talked about demand coming from oncology applications, like liquid biopsy Hi, Bill Yeah And what I share with you will be again anecdotal, but certainly, the economics makes sense for the X customers to really excite about the S4 in a way that frankly, the other flow cells aren't as exciting to them And so, if you look at how the conversations are playing out with some of our HiSeq X customers, some of them did purchase NovaSeqs But there are more NovaSeqs so they can get familiar with the instrument and the platform, understand the workflow, understand the differences But for the majority of the HiSeq X customers, moving the fleet over to NovaSeq really makes sense once the S4 is out, and that's how this market's playing out In some cases, the HiSeq X customers waited for the S4 to get into NovaSeq at all And in other cases, they got in but are looking at the S4 as the enablement that they were waiting for to move their fleets over It's still too early for us to talk about the contribution that Helix will have They announced, they launched last quarter, so only a few months post their launch And so, they're still in their ramp-up phase I think sometime over the course of the next year, it'll make more sense for us to give you more details on that business, but again, it's too early right now Let me take a cut at the answers So, the $42 million sequential consumable growth was driven by growth across all of our platforms So if you look at every single one of our platforms, we saw sequential growth in sequencing consumables But, obviously, the growth wasn't equal So if you look at the high throughput part of our portfolio, the biggest part of the growth in that part of the portfolio came from NovaSeq And so, that was the biggest contributor on the high throughput part of the portfolio to the sequential sequencing consumable growth that we saw On the benchtop side, again, although every platform grew, the biggest contributor to that growth was NextSeq, and so – but all our platforms grew It was really NovaSeq and NextSeq that were the big drivers of the consumables growth that you – sequencing consumables growth that you saw sequentially In terms of will NovaSeq lead to labs spending more in consumables, we are at the stage where we can share some anecdotal feedback And what we are hearing is that certainly with S4, there are applications, there are samples that become accessible at the price points that S4 affords That will lead over time to labs being able to access additional funding and drive more consumable spend We're at the beginning of that obviously with S4 coming out and giving customers access to price points for those large-scale projects that they didn't have before And so, we are encouraged by seeing a lot of new customers come in to buy NovaSeq because they believe that thesis What's still in front of us, then, is to see that pull-through show up in NovaSeq consumables, but the early indicators in terms of people buying instruments, in terms of new customers coming in, is very positive And I actually didn't capture the third question Yeah So, let's talk about both the trade-in and the decommissioning Our conversations aren't really driven as much by the utilization rates What we're finding is it's driven by what customers expect in terms of their business plans going forward And so, again, some of them are new that didn't have the history but are getting into NovaSeqs and it's based on a business plan that they see accessible to them now, whether it's the new customer we have that decided to get into the whole exome, whole genome sequencing servicing market And so, it's much more driven by business plans going forward rather than the utilization rate by far (35:30) There's some overlap between the two but it's not a perfect overlap there In terms of decommission, just for the numbers, we removed approximately 23 instruments from the HiSeq installed base and we did not decommission any Xs from the installed base At this point, we're not talking about the specific volumes because we've moved away from reporting those volumes, so we don't have that to share with you What we are sharing is the market dynamic, right? And so, from a market dynamic perspective, we continue to be very encouraged by the progress we are seeing in terms of NIPT reimbursement, both in the United States where we're now at 39% of the population, about 150 million lives that are covered for an NIPT testing And then, the progress we're seeing in Europe have some countries that are covering NIPT testing for the entire population And so, we see that happening in the Netherlands, for example, in Belgium, and then, countries like England and France where we're starting to see parts of the population getting covered So, we continue to see progress in terms of people having access to the test, which is then driving the sample volume growth that we talked about and that obviously will then drive revenue growth Yeah I mean, there are a number of areas that are emerging that we're excited about We're excited about the whole area of single cell research We think that is a new research paradigm that is driving a lot of very exciting projects to understand the differential expression across cell types, even in a single tissue We're excited about the research that's happening and this is more commercially oriented, but in immune-oncology, for example, we think that that's driving some very exciting research I'm never going to be on the side of arguing against Bill Gates And in this case, I actually agree that metagenomics is also a very promising and exciting area and for genomics, in addition to proteomics So, I think that's an interesting area, too, and has, in the long term, some really exciting potential We continue to see demand growing over the long term from that segment We talked about the fact specifically, for example, that sequencing is a core tool in immuno-oncology and immunotherapies And so, that area continues to be an exciting one that we are watching that holds promise, not just for us but for patients as well And so, we see them as a growing part of our business and I expect that'll continue to be so for a long time Yeah So, I'll start by saying that – and we said this this quarter, we said this last quarter, that we are very pleased with how NovaSeq is performing, and it is on track to exceed the full-year plan we had for NovaSeq coming into this year and exceeded comfortably So overall, we are very pleased with how it's playing out in the market We continue to believe that in the long term, the vast majority of our HiSeq customers will upgrade and most of them will move to NovaSeq Now, we expect some of them to move to NextSeq and that's good for us, too, but we do expect that most of them will move to NovaSeq The one-third new to sequencing is incremental, obviously, to the upgrade wave that we are looking at And that's encouraging to see it play out the way it's playing out now for two quarters in a row So overall, I'd say we are very happy We are exceeding our plan for the year We do believe, we continue to believe, though, that this is a multi-year upgrade path So coming into the year, we thought it was a three to five-year upgrade wave and we continue to believe that We definitely believe that NovaSeq will enable new types of sequencing to be done on a number of fronts So, NovaSeq fundamentally enables larger experiments, larger cohorts And that could be at the macro scale, so population sequencing efforts I think are more accessible to more customers than they were before because of NovaSeq But also at the micro scale So we expect to see, and we are seeing, lots of exciting single-cell projects being contemplated because of the economics and the power of NovaSeq And so we expect, on the one hand, NovaSeq will enable access to larger cohorts at every scale in a way that hasn't been done before We also expect and we're seeing that, even with the same size of cohorts, we're seeing a lot of sequencing intensive applications being done more So the growth in liquid biopsy is enabled by people having access and more customers having access to more power at lower costs And that's what NovaSeq does So the liquid biopsy market, I think, is accelerated by something like NovaSeq We will, we believe, continue to see the movement from single-gene panels to multi-gene panels to exomes to genomes, right? And actually, interestingly enough, I think the recent PAMA decision also helps that where there's the reimbursement framework starting to be set for the larger multi-gene panels But I do think you'll start to see this migration to doing bigger panels and then doing exomes and doing genomes And we're starting to see that, but it's early in that journey But over the course of multiple years, we all know you do better science; you get higher diagnostic yield as you move up that continuum And NovaSeq is helpful in that dimension And then the applications that require sort of needle in a haystack type work, and that's again like liquid biopsy where you need to do very, very, very deep sequencing to find the rare event, the rare molecule And there's a set of those applications that can now be enabled with the power of NovaSeq And so, on a multiyear horizon, we do believe that NovaSeq fundamentally enables new types of sequencing at the cohorts, larger cohort scale, but also at the more intense, deeper sequencing scale I think on sort of both categories, I think if you look at the – on the screening side, there are a number of companies now that have been resourced and financed to look into that market So it's not just GRAIL anymore And in aggregate, I think that's additive to our business as a whole And it's sort of a positive We've talked before about the fact that GRAIL had the potential to be among our biggest customers And to the extent that you have more companies that are doing sequencing intensive applications in very large-scale studies like that, having more customers that show up among our biggest customers is definitely good for our business That will probably play out over time and unclear to say what the actual overall impact in 2018 will be But that is a very healthy dynamic in general Similarly, if you look for later stage, whether it's therapy selection or monitoring, again, that brings NGS into segments of oncology where there was no NGS before And oncology remains one of the big market opportunities where NGS can really make a difference And so I think it's all incremental in terms of driving our penetration into oncology, and that remains a very big opportunity, we believe Sure We did anticipate coming into the year that, as we launch NovaSeq, you would see some destocking, and that's what played out in Q1. And if you look at it, it's primarily the handful of X customers potentially that we felt would destock as they looked at NovaSeq If I look at the consumable growth, the sequencing consumable growth that we saw in Q3, it was across the board, across every platform that we had And so I think when we started to break down, okay, could the destocking have played a factor here? It certainly could have and it likely did probably maybe in one of those platforms I think for HiSeq X it's possible, for example, or HiSeq But if you look across the board, I said we saw sequencing consumable growth across every single platform And the story, there are stories around each segment of the market and why that's growing For example, we continue to see our clinical commercial customers grow, and that's driven by growth in samples in the markets that they're addressing, whether that's in oncology or in NIPT, and that's starting to flow through, for example, in NextSeq or in MiSeq or it could be some in HiSeq And so what's happening is, across the board, we're seeing demand grow And that's starting to show up across our different platforms In X and in NovaSeq, you're starting to see the dynamic of NovaSeq is ramping up And so there's a little bit potentially of the destocking that's playing out in that part of the market But again, I think across the board, what we're seeing with our customers is they are seeing demand, and that's driving them spending more on consumables It's definitely been a good growth story for us and there are a number of drivers from it A big driver obviously has been the direct-to-consumer market Those customers have continued to exceed their own plans for growth And that then translated into the demand that you're seeing from us But there are other segments that are playing out, too For example, agriculture is a very interesting segment and continues to drive demand for our microarray products We expect to see the demand continue to grow from their customers' perspective You talk to ag customers, they're looking to expand either the types of species that they're looking to sequence They're looking to actually expand the production sequencing that they do If you talk to our DTC customers, they believe that they are still in the very early stages of this big consumer genomics market And so, from a demand perspective, our customers will tell us that if you look out into the horizon, they expect demand to continue to grow and that we're at the very early stages of those markets We're also, though, talking to them about moving to sequencing And if that happens, obviously, then you'll see a decline in the microarray line But that's really good news for customers and their customers because that means they are getting more value from the sequencing And it's obviously terrific news for us at Illumina It's hard to predict, we're already seeing sequencing in the ag market, for example, and that's already starting to play out So it's hard to know how much of this microarray demand will move to sequencing over time, and obviously, we're going to do everything we can to encourage that And then the same thing on the DTC side It's hard to predict if and when those markets will move to sequencing And when that happens, obviously, you'll see microarrays come down and you'll see sequencing go up, which again is terrific for us So it's hard to call a specific run rate I mean, we've been on the market now for – it's two quarters, not fully quite three quarters yet, and each one of them has had their own dynamic Obviously, there was the launch quarter There was a quarter when we were constrained by manufacturing And this is the first quarter we are exiting without being constrained by manufacturing And so I don't think we're at the stage yet where we can call an order run rate I will say, though, that, as we looked – coming into this year, we looked at the curves, the order curves by quarter for some of our previous instruments, including the X And what we're seeing with NovaSeq is consistent with what we saw with the X So, at this stage, it's not yet at the regular run rate basis, but the curves are similar to what we've seen before It'll take a few more quarters, I think, before we get to a steady state of orders per quarter Look, we believe that prior authorization will add friction into the market as a whole And so, over time, that's something we want to help the industry work through It hasn't showed up in terms of impacting our demand at this stage And when I talked about the growth in the clinical market, one element certainly was the translational liquid biopsy studies that are going on But we talked about the growth we're seeing in oncology testing as a whole even beyond liquid biopsies We talked about the growth that we're seeing in NIPT in terms of the covered lives continuing to expand both here and internationally And so there are a number of factors that are driving that 35% growth, not just the large liquid biopsy studies Yeah I'll start by saying that I saw some of those things at ASHG too, and I think it is exciting to see the momentum that's building around the value of whole genome sequencing I was talking to a customer at ASHG who said, look, it's clear to them that even if you wanted to do the best exome you could, the way you do it is you do a whole genome because you actually would find variance that you wouldn't find if you did whole exome sequencing, which is an interesting conversation And I think from our perspective, it's exciting to see the momentum building around whole genome sequencing From a $100 a genome perspective, we continue to believe that that is attainable with the architecture that we have in NovaSeq It is a multiyear goal, but we have line of sight into the technology improvements that get us from here to there The thing that we are also working on then is trying to catalyze the sequencing intensive application demand so that we can continue to drive prices down, and it will be met with a demand that will be overall additive to the market size And so we have work going on from a technology perspective to enable that, but the rate at which we step the price down will be equally informed by our belief that the elasticity of the market is there to extend it at each price point that we take down We think that S4 for customers that reach the highest volumes do give you access to prices that are lower than you would have got with the X, and we believe that the market is ready for that And so we think the elasticity is there by taking the prices per gene and therefore the prices per genome down below the X, it overall expands the market So that's the first step towards the $100 genome as we put out S4 right now And we'll continue to step it down knowing that we can get there with this architecture, but it will be gated somewhat by in our belief that the market is there at any given point for the price point we put out So the – sorry, the question you're saying is that – let me make sure I understand it So you're saying, look, if you look at the high throughput part of the portfolio, what is the dynamic that plays out as they move to NovaSeq? Is that the question that you're asking? Yeah So there are a number of things that are going to play out One thing that we believe with NovaSeq is that it will push the elasticity of the market and that, by enabling customers to have access to lower price points, they will go after larger cohorts So, if you are a high-throughput customer, if you are an X customer, for example, you will look to do larger experiments You will look to do single-cell experiments You will look to do liquid biopsy experiments And some of those you couldn't do on the X, by the way, because it was constrained to whole genomes, right? And so, one thing that I think will drive elasticity – sorry, utilization beyond just moving your workloads from an X, for example, to NovaSeq is that part of that transition for a number of our customers includes a contemplation of workloads that they wouldn't do before without a NovaSeq And that's true whether you're an X customer moving to NovaSeq or a 2500 customer moving NovaSeq As we think about the market, we think sort of overall we talked about the fact that utilization is in the 50-ish-percent and has been sort of approaching that now for a number of years and fairly stable And so we're never designing to say, look, we want to have them running at 80%, 90% And if that's happening, it would indicate to us maybe that there was too much centralization of the market And so the other dynamic that NovaSeq enables in the market is it democratizes access to high-throughput sequencing And so you're seeing customers that were outsourcing a lot of their samples in some cases, and they're looking to move those in-house And so the other dynamic the we're targeting with NovaSeq is to democratize access to high-throughput sequencing Yeah I think – so when we talked about the HiSeq sequencing consumables, we said, look, that the – we expect that to go down over time And the dynamic we saw play out last quarter was we had these large clinical commercial customers that were seeing growth in their business, and that drove the demand for HiSeq consumables last quarter that resulted in overall HiSeq consumables growing We expect that to be a temporal dynamic, and we expect that over time there will be a cut-over Now, the validation point – with every customer, the validation of NovaSeq is unique to them And one customer was telling me in two days they were ready to go In other customer cases, it could take months for them to do the validations they need And it's driven a little bit by whether they're a research customer or a clinical customer But it's very much driven by the practices of that lab That I think is not going be the gating factor of how the HiSeq consumable bucket changes I think it's going be driven by the dynamics of their business And so, if you have customers that have large experiments that are running or that have extensive validation practices, that will determine how quickly they move over

2017_ILMN

2017

MUR

MUR #Thank you, Dana. Good morning, everyone, and thank you for joining us on our call today. With me are <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer. Please refer to the information on slides we have placed on the Investor Relations section of our website as you follow along with our webcast today. <UNK> will begin by providing a few ---+ a review of our first quarter financial results highlighting our balance sheet and strong liquidity position, followed by <UNK> with the first quarter highlights and operational update and outlook, after which questions will be taken. Please keep in mind that some of the comments made during this call will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, see Murphy's 2016 annual report on Form 10-K on file with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements. I'll now turn the call over to <UNK> for his comments. Thank you, <UNK>, and good morning, everyone. Consolidated results in the first quarter of 2017 for Murphy Oil were a profit of $58 million, $0.34 per diluted share, as compared to a loss of $199 million or $1.16 per diluted share a year ago. Results from continuing operations had a profit of in the first quarter '17 of $57 million, $0.33 per diluted share. The first quarter results from continuing operations for 2017 included a $96 million after-tax profit from the sale of Canadian Seal heavy oil assets in the quarter. Quarter 1 also included an approximate $55 million noncash tax charge related to an expected future U.S. repatriation of 2017 earnings in Canada and Malaysia. Adjusting our GAAP numbers for various items of the comparability of results between periods led to an adjusted loss of $10 million or $0.06 per diluted share in the first quarter 2017. Our schedule of adjusted loss is included as part of our earnings release and the amounts in this schedule are recorded on after-tax basis. Beginning in the first quarter 2017, the company determined that current earnings from foreign subsidiaries with operations in Canada and Malaysia would not be considered indefinitely reinvested in those local operations. A corresponding noncash tax charge of approximately $55 million was recorded in the first quarter of '17, based on the expected tax impact under existing U.S. tax law from the future repatriation of these Canadian and Malaysian profits to the U.S. through dividends. The tax charge also includes the anticipated 5% dividend withholding tax applicable to all Canadian repatriations. Under current law, the future repatriation would be considered U.S. taxable income which would reduce the future benefit of U.S. net operating losses generated by the company's domestic business. The company's average realized sales price for its crude oil production was $50.10 per barrel in the first quarter 2017. This average benefited from our historically strong market prices for our Malaysian oil. Also, our overall natural gas liquid prices in the U.S. and Canada averaged $17.01 per barrel. Natural gas sales prices in North America averaged $2.17 per thousand cubic feet in the first quarter, while realized oil index natural gas prices offshore sale rack averaged $3.50 per MCF. At March 31, 2017, Murphy's total debt amounted $2.98 billion that includes capital leases. This makes it slightly below 38% of total capital employed, while net debt amounted to slightly less than 28% of capital employed and amounted to $1.9 billion. As of March 31, we had no outstanding borrowings under our almost $1.1 billion revolving credit facility. Worldwide cash and invested cash balance totaled $1.1 billion at quarter-end. That concludes my comments. I'll pass it over to <UNK>. Thank you, <UNK>. Good morning, everyone. Thanks to those who are on call today. Murphy started the year an all-around solid first quarter. We produced 169,000 equivalents comprised of a balanced mixed between onshore and offshore production. Offshore productions comprised of 73% liquids as compared to onshore business which is 51%. Our onshore developed plays continue to exceed our production expectations. Both our offshore and onshore liquids are high-value barrels and they received a premium pricing based on Brent for offshore business and LLS for U.S. onshore. And our new Kaybob Duvernay shale play receives current condensate net box just below Eagle Ford Shale prices. For the quarter, the company spent just over $214 million in capital, which is in line with our capital budget of $890 million for the year. We continue to strengthen our capital efficiencies which we worked hard to achieve over the last 2 years. With the solid balance sheet and the liquidity cash on hand, we continue to build positive financial momentum as we progress through the year. Our diverse asset-based and oil related premium pricing drives our continued strong EBITDA per BOE performance. In the first quarter, we achieved $29.50 EBITDA per BOE and excluding our pretax gain on the Seal divestiture, we achieved just over $20 EBITDA per BOE. Operationally, we are successfully executing our 2017 plan across all our assets. The early appraisal wells in the new Kaybob Duvernay play are yielding positive results. We're now just beginning to drill and complete the wells with our plans in our way. In Eagle Ford Shale play, we'll continue to derisk the Austin Chalk in an effort to put shales on. In the Karnes area continues to see well results exceeding expectations across at that play. Our Tupper Montney natural gas play has exceptionally low operating and execution cost, making it more attractive to consider accelerating production and bringing value forward. In offshore business, we continue to execute on highly economic production optimization projects. We continue to evaluate numerous exploration projects as we believe that entering these types of plays with low expense entry at the bottom of the cycle is minimum, that cost will hence long-term value. We'll now look at the first quarter in more detail. We produced over 169,000 equivalents at the high end of our quarterly guidance. Our better-than-forecasted first quarter volumes are primarily due to stronger base and new well production in the Eagle Ford Shale, even with fewer wells brought online than originally planned. We also had higher natural gas sales offshore sale like Malaysia, strong field performance in the Gulf of Mexico and better than planned uptime in Block K Malaysia. These were partially offset by delay in additional plant compression and the initiation of royalty this year at the Montney project and downtime in offshore Canada. The annual 2017 capital program is being maintained at $890 million. Full year 2017 production guidance is being maintained at 162,000 to 168,000 barrels equivalents per day with onshore production expected to increase by approximately 9% as per our original plan. Production for the second quarter 2017 is estimated to be in the range of 160,000 to 164,000 barrels equivalent per day. In offshore business, we produced 84,000 equivalents for the first quarter with 73% liquids, and our Malaysia business Block K and Sarawak produced 38,000 barrel equivalents per day during the quarter with natural gas production at Sarawak averaging near 120 million per day. Operationally, we're executing on our planned production optimization at KiKeh and a planned water injection oil at our South Acis field in Sarawak. In our Gulf of Mexico and East Coast offshore Canada production the fourth quarter averaged 25,000 equivalents per day with 92% liquids. Commingling of the 2 zones of the nonoperating Kodiak field began early in the quarter. Following the project, we're now producing close to 2,000 barrel equivalents a day ahead for the fourth quarter 2016 production for this field. Along with our partner Chevron, we're planning to sidetrack over the Mississippi Canyon 166 Hoffe Park discovery prior to year-end. We have a 25% nonoperating working interest in the previously announced discovery. Also in the Gulf of Mexico, we're progressing with the environmental approval process for our highly-contested Mexico deepwater Block 5 with plans to spread first exploration well in late 2018. We have purchased new seismic of the acreage which is giving us new positive insight into prospectivity on this block. During the second quarter, we're drilling 2 Wells in Vietnam Block 11-2. Currently, the wells are progressing to plan. Late in the second quarter, we'll be drilling a third well with our partner, PetroVietnam, near our LDV discovery in Vietnam Block 15-1. This well has much promise for us as we again be able to test our naturally fractured sandstone play in prolific Cuu Long Basin. In Eagle Ford Shale, first quarter production averaged over 46,000 barrel equivalents per day with 88% liquids. There were 13 new wells brought online, of which 3 were Austin Chalk, 4 were Upper Eagle Ford Shale and 6 were Lower Eagle Ford Shale. We are able to meet our first quarter production guidance of 2 wells online in plan as our base production along with new wells continue to outperform expectation. Eagle Ford Shale production will gain momentum as we continue to ramp up our completion plans. We plan to bring 59 additional wells online this year with 19 in quarter 2, bringing our whole year well count to 72. Our focused area through the rest of the year will be our tried-and-true Lower Eagle Ford Shale zones in the areas of Tilden, Karnes and Catarina. We announced our fourth quarter Eagle Ford Shale production approaching 54,000 barrel equivalents per day. Our Karnes wells, both upper and lower, are producing above their expected type curves which were up for Upper Eagle Ford wells that we brought online in the first quarter achieved an average IP30 of over 1,200 barrels equivalent per day, which is leading to continued production for our recent Upper Eagle Ford Shale wells in Karnes striking 47% above expected type curves. The 6 Lower Eagle Ford Shale wells that were gone online in the quarter achieved an IP30 of over 1,300 barrels equivalent per day which is leading to recent Lower Eagle Ford Shale wells in the Karnes area, tracking some 45% above the 505,000 BOE type curve we have. As we gain additional production history over the course of the year, we'll make upward revisions to our EUR, which will increase our net resource and lower our breakeven well cost further. All the better well performance points to continued success with many technical advances, including high-sand concentration and tighter clusters in our completions. We continue driving down our operating expenses better in water disposal, infrastructure and field [interpretation]. Operating expense for the first quarter was $7.90 per BOE, which is down 6% from the fourth quarter of 2016. We believe our 2017 operating expenses in Eagle Ford Shale will remain around the $7 per BOE figure. From a drilling perspective, we continue to drill pace at oils with recent Tilden well drilled in almost 5.5 days. As we progress, our Austin Chalk delineation program, we're beginning to clearly respond to sweet spot (inaudible). 2 wells in the pad, we brought online in the quarter in northeastern acreage achieved an IP30 of over 1,100 barrels equivalent per day. The third Austin Chalk well brought online to test the outer rim to play is performing below expectations at present. We're now focused on the petrophysics landing zone requirement in this area of the play. For the rest of 2017, we'll complete 5 additional Austin Chalk wells in the Karnes area, 2 in the second quarter, 3 in the third quarter as we further delineate this play. In Canada, Tupper Montney asset produced 207 million per day for the first quarter during the quarter, with no new wells completed, however, early in second quarter, we brought online 5 new wells. These wells have the longest laterals length to date, they're approaching 10,000 feet as well as higher sand concentrations up to 2,000 pounds per foot. These wells in addition to wells brought online in the fourth quarter of '16 are giving projected with curve is exceeding the '17 BCF type curve. Currently, the Tupper Montney full cycle breakeven process remain below $2 MCF Canadian AECO with current royalties of approximately 3% to 5%. The Tupper Montney assets continue to drive free cash flow. With continued strong well performance in the asset coupled with excellent economics we're exploring long-term expansion options for the field. In our Kaybob Duvernay, production for the quarter averaged near 3,000 barrel equivalents per day with 53% liquids, 5 wells drilled and 3 new wells brought online and 2 well pads to test the condensate window and 1 oil pad to test oil area. The 2 well condensate pad utilized higher profit loading an aggressive choke management. These wells are at a sub-optimal lateral length and were drilled in the north-south production. Currently, wells are performing in line with the 600,000 BOE type curve at 42% liquids. A single well oil pad drilled with the 6900-foot lateral section preferred azimuth was brought online is outperforming with 650,000 BOE type curve. During the quarter, Murphy drilled 2 well oil appraisal play which we brought online during the second quarter with a planned average lateral length of nearly 8,000 feet. The average drilling cost on the pad was $2.7 million and included a pacesetter well of 20 days. Also drilled in the first quarter was a 3-well condensate appraisal pad. The cost of the pad was $3.3 million per well, which is remarkable as we increased the lateral length to over 9,100 feet. We also optimized drilling fluids and we employed higher sand concentrations when we complete these wells in the second quarter. We drilled a step-out appraisal well with the longest lateral of date of over 9,500 feet. We plan to complete this well in the third quarter. Needless to say, we've been successfully drilling long lateral wells in the Duvernay Shale. The drilling results place Murphy at the top benchmark of performance with only 5 operated wells drilled in the play highlighting, as we expected, we'll be able to leverage our North American shale expertise across all plays and drive cost down quickly once we move to pad drilling. Over the course of '17, we continue to gain better understanding with Murphy's areas within the Duvernay and anticipate we'll set Murphy on a clear path forward as competitive cost player when we move to full development mode. I'd like to point out, the single 05-29 well that was drilled on a lateral 6,900 feet with optimal azimuth. Well's performing above the 665,000-type curve with 75% liquids. This is a very successful well for us in core and appraising our oil area as we will now move to longer laterals at this pad site late in this year. This year, we will drill 16 wells and complete 13. This is 2 more online wells than previously planned. However, total span will remain within our budget of $145 million. For the 13 wells that we complete, 8 will test the oil area and 5 will test the condensate window. We'll bring on 5 new wells in the second quarter, 3 in the condensate and 2 in the window of our Kaybob West area. Similar to Montney, we're experiencing very low royalties in Duvernay, which are now near 8% and are expected to decrease to 5% for the next few 2 years. Production in the second quarter is expected to be in the range of 160,000 to 164,000. Production is lower relative to quarter 1, mainly due to planned downtime for maintenance at offshore assets in Malaysia, in the Gulf of Mexico and Canada and the 10-day planned turnaround at our Tupper Montney asset. Production also will be impacted by previously announced redetermination and our nonoperating Kikeh field and a planned entitlement change associated with Sarawak, Malaysian business. Oil production in second quarter was partially offset by strong performance from recent online wells in Eagle Ford Shale, the new wells we expect to bring online in Kaybob, Duvernay assets during second quarter. The majority of that wells in Eagle Ford Shale we brought online in the second and third quarters are leading to a meaningful midyear production ramp up which will ensure we achieve our full-year production targets and place us with the better than planned exit rate at year-end. With the first quarter production behind us, 2017 is shaping up to be a good year as we continue to execute our plan. We remain on track to spend within cash flow, while maintaining our current dividend, reserving financial strength and ample liquidity. Also, we're keeping our focus on cost and capital spend, while stabilizing production service foundation for future growth. In Eagle Ford Shale, we continue to delineate multiple zones while driving greater efficiencies across the play. The results from our Upper Eagle Ford and Austin Chalk wells are still improving, leading to an increase in our recoverable resources. The Duvernay shale, in the early stage is successfully executing our appraisal plan, enthusiastic as we start to move forward with our future development plan in the play. Offshore participating high return offshore project, we're seeing many opportunities at the bottom of this cycle. We're returning the exploration in a measured way in the Gulf of Mexico and building on our successful plan in Vietnam. We're also focused on additional business development opportunities for both offshore and onshore areas that resemble our [existing] assets. And I remain very pleased with my team's execution so far in '17. Again, we're achieving high margin and EBITDA per BOE metrics, which is a benefit of our diverse asset base. We're maintaining capital discipline to ensure we preserve our balance sheet. Our developed onshore assets continue to outperform as we employ higher sand concentrations fracs and longer lateral wells. As we begin appraising our Kaybob Duvernay play, we're transferring knowledge from our Eagle Ford Shale and Montney assets to ensure we quickly move up the learning curve to drive future production growth. Offshore execution really is one of our competitive advantages and we're looking to expand our offshore exploration portfolio at the bottom of cycle to build on our execution advantage, primarily in low-risk tieback opportunities that are highly economic. As always, we are paying close attention to the business development opportunities in both onshore and offshore going forward. This concludes my remarks and I'll be open for your questions. The wells in Vietnam are 2 wells which should be approximately 20 million to 25 million our share. And the well in Mexico next year is probably set up for around that same spend. In the Vietnam areas, we're 60% and we're carrying part of the cost for our partner, paying them around 80% on 60% in those wells. And after end of those wells, there will be no further carry in the project. Mexico well probably be ---+ we're trying to target now opportunities that are economically large and hit our F&D targets and our economic thresholds. And we're probably looking at all the wells participating in around $18 million to $20 million our share. And that's top exposure we're willing to put into these plays and they'll be no different in Mexico. Well, to explain that issue, I'm sure they'll be asked that if you look at first quarter '16 to first quarter '17, we're actually lower on our costs in Eagle Ford on a true average date of both drilling and completion. But we haven't seen that break into us yet. We continue to see efficiencies in our drilling, probably ---+ we've been doing 10% here and we just continue to set the pace at our wells. Now worst case scenario, we see that the fracturing ---+ just the fracturing side can go up 30%, smaller increases in everywhere else. We start to see this deal around the possibility of a 10% increase per well, that's around 400,000 of well for us. And we're going to drill 60 ---+ drilling complete, 60 more wells this year. So for us, that's like a 24 million possible change. As we look at the efficiencies continue to set pace their wells, working on some new motor technology, we're also noticing that our stages per day is going up from a year ago, 6 stages a day to 7. We're also working on some other plans that we have on technological basis to employ fractures. And I see us being able to work that off. And I see our fracturing cost and the deals that we have with various vendors, including rigs and fracturing to place us in a pretty good situation there. It's not detrimental to the company at all. We handle this, we go up and down with this as needed and it's going fine for us. It's probably on a different scale. The equipment is tied, but there is not as much activity with the breakup seasons and various things of that nature. We're probably exposed there, probably $10 million to $15 million for the whole year. I just don't see this in our current procurement over the next couple of years. I'm just not that concerned on that issue at this time. I think these trends, from our original outlay, that <UNK> shared with you earlier in the year should not change. It's strictly timing issues. Actually, our capital is a little bit low in the first quarter as we didn't complete 6 wells in the Eagle Ford that would have cost probably around $3 million a well. And we'll be hitting that hard in the second and third quarter with the lower execution amount of wells in the fourth quarter. So I don't really see any regional change overall for the year, just strictly a timing issue and not something we see as changing or trend or anything like that, <UNK>. Actually, it's going very well. We just had some ---+ we had some delays in putting some wells fractured and made some different changes in the who we're using what we're doing in the fracturing leading to some higher well counts in the second and third quarter. We are looking at a higher exit rate than we originally had before in the play, probably looking at pretty strong 58,000 coming out of it in the fourth quarter. And originally, it started to be 2,000 to 3,000 less than that. And happy with how that's going. I think that's possible to have a slight increase next year or maybe not as flat as we originally thought. But then we have working capital and making the asset free cash flow we're trying to make our developed Eagle Ford plays and Montney plays be free cash flow providing and we have that in the back of our minds as well. So haven't really worked into what it will look like in '18, but we definitely not decreasing. We're flat to slightly growing at this time. We're just getting in new wells into our plans at this time. Let me correct something I just told <UNK>. I told him that our fourth quarter in Eagle Ford will be 58,000, actually 53.8, <UNK>. I apologize I misread that number there, I don't have my glasses on. We're very active, <UNK>, in looking at these opportunities offshore and onshore. We like ---+ we look at our strategy, we like to take a differentiated perspective looking in basins in place that we can have rate of return with strip with a conservative view of EUR and conservative pricing. That's our mantra, that's our company, that's our history, that's what we do. And we continue to focus on these and we have opportunities all the time that we are reviewing both onshore and offshore. And looking to be in the accumulator in the Gulf if we could find some acreage that we could operate well and looking for things in the onshore that would complement where we're working at very near, where we're working and methodology of things we're executing. And all I can tell you is we're very active at doing it and we're ---+ see it as a key part of my focus at this time. It'll be just like our ---+ it's just like our Eagle Ford wells in high 80s. It's really no different. There's a different crude means coming in formulating in a different way but it's slightly different gravity. It's very low, very high-quality. But it's the same kind of crude percent we have, pretty strong oil for our business. Let me ---+ I have to dig for that. <UNK> is going to dig for that. Do you have another question you can ask while we pull that up. Eagle Ford decline is very similar to what it's been. We're looking at the year 1 decline there, somewhere around 30, year 2 is around 15 and year 3 about the same. And these shale plays, it's not really a true decline rate like in offshore asset and that's the decline we have from the wells. So it would be like our new well online decline as those types of factors. New wells on top of that base, if you get me, is 31%. And it depends on how many wells you add and how many older wells you have and things of that nature. That's where we have it today. We're taking a very close look at it right now because we've been doing so well there. Our drilling continues to improve. Our recovery per well is outstanding. Our operating expenses, they're very good in the $0.60 range in that asset. What we're looking at is to build with a midstream partner an additional plant or series of $200 million a day plants originally in our long-range plan, which is not included in the growth plans that we shared in the fourth quarter, we had the expansion of the Montney as late as 2023 and our business containing on that way we're looking to advance that to 2020 and drilling additional wells in 2019. And we're looking at around $100 million of additional capital. We can build up the wells, deliver the new $200 million and we're in feed stages with partners there to look at building the plant where the plant would be and among our field there. And really I like how that's looking and like the moving forward with that cash flow and hundreds of millions of dollars of free cash accumulation by 2030 by not doing status quo of the 2023 expansion and moving it forward by 3 years. And <UNK>, it all depends about the price and what we do there and what's kind of modeling up, 2.90 C AECO in 2024 and around 3.20 C AECO in 2030. That's how it is today, but I don't think it's out of bounds. And see how that would look, compare that back to strip prices and compare that to other opportunities and review that with our Board this year, and it's gaining momentum in the company. One second. Let me answer the prior question on the wells. In quarter 2, we're looking at 2 Austin Chalk wells in Karnes, 2 wells in Catarina, 12 wells in Tilden. Quarter 3, we're looking at 3 Austin Chalk wells, 14 Eagle Ford Shale wells and 9 in Catarina. And quarter 4, 14 wells in Catarina. In addition of the quarter 2, we will have 5 Eagle Ford shale wells, partnered with the 2 Austin Chalk wells. So go to your question now. I'm sorry for that delay. We have some preplanned EURs that we see as successful, but it just depends on costs and how things change with the field, as you can imagine. We have ---+ I think, from a production basis these wells we drill and see on our slide and our deck there and our other public decks. There's 11 of 18 pad, looking for some thousand EUR type wells in there and that would be something we need to be pulling into in the high 7s to 1,000s to how that ---+ these are some pretty longer lateral wells in a condensate gassy region. I think if you look at this 05-29 well, we have in here today on our 6,000 feet type lateral performing on 600,000 type curve and you put that in between, thereby the 04-32pad seen in our slides, you can kind of see that that's in the 600,000 and 700,000 range. And in and around that, keep in mind, our Eagle Ford wells are 500,000, 600,000 and accompany that with the low royalties, we have very low royalties here for several years in Duvernay cost coming down pad drilling. This is working. There's an enough data to show it's working now and I'm not going to be put off by a singular pad result at this time. We're experimenting with about 3 different ways to frac, 2 different ways to flow back, 2 different type of staging, doing a gel type frac, slick water type fracs, 3,000-pound per foot fracs, 2,000 pound per foot fracs. So we got a lot going on in there in a planned way. And on and off on 1 particular pad being the driver of our stock price in the middle of Canada, I don't see that as a big driver today. But overall, we're real happy with how we're doing and just got to look at our holistic year of delineation in that play. Sure. For sure. What we're trying to take all our learnings from all our other plays, have a systematic approach into this, just jumping in and completing 12 well pad at a certain way, a certain spacing, at certain frac design and find out later that wasn't the way to do it. And our walk across this play and these different attributes of the technological changes in fracking that we learned from other areas is slowing this into something we can have a better value, better down spacing, better total design of the pads going forward if we learn from other areas. Downtime comes and goes on schedules to do things. The second quarter always has a lot of downtime for an offshore company. That's very typical. We're absolutely new in plan for the redetermination and for the entitlement change. On these entitlement changes, first off, you have to make a lot of money for them to click in. And that's going very well from us on our revenue overseen basis overall. And that's been known and the only change in the second quarter from our original guidance would have been a change in the completion timing of Eagle Ford just more backed into late May. We have another crew starting in Texas. And that's the only change to our original plan. And now with our better base production in Eagle Ford, looking at a pretty strong exit at the end of the year. And the only change is that timing of fracs, all the other issues are known and planned and no surprise to me in any way. No. No expiration in that number. I'm sorry, I'm having trouble hearing you. Can you speak up a little louder. We just purchased some new wide azimuth seismic over our block ---+ a large portion of the block. This block is very large, over 100 Gulf of Mexico normal blocks in the U.S. side. I'm very happy with those images. This play is a very nice block for us. It would have classic Gulf of Mexico attributes such as amplitude, plays three-way plays against salt, four-way closure. It would have every play type that we've seen in the Gulf of Mexico, including sub-salt, which is very unexplored in that entire country compared to the U.S. I'm very pleased with those images. Pleased with the prospects we have. Our partnership group, our exposure we have in the block will not be high percent and guiding ground for in it. And most contested block in the sale and we're looking to drill the well in late '18. No. That's progressing well. If you know the history of these projects, there were 2 floating LNG boats produced by Petronas. Petronas is the leader in delivering these boats on time. The first boat is just like our vessel, which they own, has been working in Malaysia now already and went through the critical derisking of offloading LNG recently. It's a very large turret associated with this vessel. It's manufactured out of the country and has been transported to Korea now. And we're all systems go to defer Petronas to place that vessel and produce in 2020. We then will spend money in '18 and '19 with the completion of the wells, we'll be delivering the gas molecules to the edge of the boat for Petronas, just as we do in shallow water where we deliver LNG to them at the doorstep of their LNG plant onshore in Malaysia in Sarawak. So going well, they're back in line doing the project. I believe the Petronas sees advances and possible ability of LNG price to increase past 2021, 2022. And that's helping with that project. That's helping bring ---+ hopefully, we can bring for a Brunei project. I think there's a little bit of improvement in LNG in that region. They're the leader. They're the king of the road in LNG in Southeast Asia and I like falling behind Petronas in that. With our sale down in Malaysia few years ago, it should be about the same level than that production we have in Sarawak today and should go for several years. The change out in Block K has been around the company for a long time. I believe now it's out in 2021 or something to that effect. We have no additional changes in entitlement in Sarawak. We have an entitlement change in the third quarter of '18 in Block 309 oil, nothing again until fourth quarter of '19 for 311 oil. No change on 311 gas until 2021 and we just made a change in 309 gas, which is primarily the BOE benefactor of this reduction. And that won't change for ---+ I don't have numbers long enough to know the when the next change is there. So pretty stable for a good while in Malaysia this time. In what area did you say. Duvernay, I got 140,000 acres, 2,000 acres in there now and got my hands full doing that. I'm real pleased with it. We do see some opportunity. Just sometimes when things happen and we do not announce that we did something, it means we didn't bid for us. So we look at many things and try to get many things here and we'll continue to do so. Have no further in-line calls today. Appreciate everyone calling in and I know it's a packed time of earnings this week. And we'll get back to work here in El Dorado and appreciate it. And we'll talk to you at the end of next quarter. Thank you very much.

2017_MUR

2017

SEDG

SEDG #Thank you, <UNK>. Good afternoon and thank you for joining us on our conference call. We concluded the quarter with revenues of $115.1 million, up 3.2% from last quarter, and a GAAP gross margin of 33.6%. Non-GAAP net diluted earnings per share were $0.36 for the first quarter. In the quarter ended March 31, 2017, we shipped 455 megawatt of AC nameplate inverters. Overall, we shipped just under 1.5 million power optimizers and 58,000 inverters. As we discussed last quarter, the general slowdown in the residential PV business in the US continues with (inaudible) economic instability among businesses in the US market, including in some instances, bankruptcy. We are mindful and cautious of the increased risk in the market and are fortunate that our strong cash position of $247.6 million enables us to secure the appropriate equations needed to continue and improve our market share, while managing customer risk and pricing. In Europe, we believe that the market is improving and despite what is usually a low revenue quarter due to seasonality, we were able to increase our revenues. Overall, from everything we can measure, we continue to gain market share both in the US and in Europe. We've also seen quarter-over-quarter growth in other important countries, including Australia and Japan. This quarter, we also announced the opening of our office in Bangalore, India and expect that our presence there will start to generate more sales this year and in years to come. This quarter we had a record high of commercial sales indicating further market penetration of our three-phased workers in both the US and Europe. Without going into specific examples of installation and product name, I can comment that this quarter, we connected many new large systems, our monitoring portal, including several large projects in Japan. Alongside the success of our commercial market penetration, is the rollout of our HD Wave inverter which continues in the US and elsewhere as planned. As has been discussed, this new line of inverters not only improved efficiency and has a design that is expected to yield higher reliability in the long term, but also provide us with significant cost reduction benefit, only some of which are currently seen in our bottom line. While we know that investors have been concerned about competitive products from China for many quarters now, we have not yet seen any significant new product or players in the market, and remain confident in our technology leadership and our intellectual property rights where (inaudible). This quarter we have begun working with additional contract manufacturers for production in Europe. We are in the ramp-up phase with these new manufacturers, which will enable us to continue production out of Europe and China. Let's take a brief look at our bottom line numbers. Our non-GAAP net income was $16.5million, and we generated cash from operation amounting to $25.7 million. Our financial strength positions us well to continue to increase market share even in markets that are weak right now, and it also enables us to focus on new markets and leverage our very strong team of research and development for bringing new products to clients in new market. And with this, I hand the speaker over to <UNK> who will review our financial results. Thank you, <UNK>, and good afternoon everyone. Before starting the review of our financial results for the first quarter of 2017, I would like to remind listeners that starting 2017, our fiscal year is aligned with the calendar year. In addition, I would like to mention that while the overview will be on a GAAP basis, in certain cases I will be discussing non-GAAP numbers and measures which exclude the impact of stock-based compensation in deferred tax, as well as non-GAAP earnings per share. Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. Now let's start with the financial results for the first quarter of 2017. Total revenues were $115.1 million compared to $111.5 million last quarter and $125.2 million in the prior-year period. Revenue growth this quarter was mainly attributed to growth in Europe and the Rest of the World, while sales in the US market remained relatively flat in absolute numbers and accounted for approximately 64% of total sales compared to 67% in the previous quarter. This quarter, one customer exceeded 10% of revenues and our top 10 customers accounted for approximately 64% of the revenues. Gross margins for the quarter was 33.6% compared to 35% in the prior quarter and 32.5% in the same quarter last year. As a reminder, our gross margin last quarter was positively impacted by approximately 2% from both cost reductions related to our warranty expenses, as well as from an increased insurance payment covering a bad debt from SunEdison. The improvement in gross margins is a result of our continued cost reduction in product manufacturing, logistics and support, combined with a relatively stable pricing environment. Moving to operating expenses, research and development expenses were $11.5 million, an increase of 10.8% compared to the previous quarter and an increase of 31.6% compared to the same quarter last year. This increase is in line with our plans to further invest in new product developments and continue our focus on cost reduction. We are fortunate to be able to invest in these resources given our strong financial performance. Sales and marketing expenses for the quarter were $10.8 million, an increase of 3.5% compared to the previous quarter and a 22.1% increase compared to the same quarter last year. G&A expenses were $4.4 million this quarter, an increase of 42% from the prior quarter and an increase of 28% year-over-year. While ongoing G&A expenses decreased by approximately $0.2 million compared to the last quarter, this quarter we needed to increase our accrual for doubtful accounts, mainly due to uninsured portion of AR balance related to the bankruptcy of Sungevity, and an overall deterioration in the credit stability of a few of our customers in the US. In total, operating expenses for the first quarter were $26.7 million or 23% of revenues compared to $23.9 million or 21.4% of revenues in the prior quarter and $21 million or 16.8% of revenues in the same quarter last year. Operating income for the quarter was $12 million compared to $15.1 million in the previous quarter and $19.7 million for the same period last year. This reduction in operating income compared to the previous quarter was driven by one-time items, which included a contribution of $2.2 million of additional gross margins due to cost reductions related to our warranty expenses recorded in Q4 2016 and expenses related to an accrual of doubtful accounts recorded this quarter. Financial income for the quarter was $1.4 million compared to expenses of $3.2 million for the previous quarter and financial income of $2 million for the same period last year. This financial income is a result mainly of the euro revaluation against the US dollar and offset of a portion of our unrealized foreign currency losses recorded last quarter. This quarter, we recorded income tax benefit of $0.8 million compared to income tax expenses of $2.2 million in the previous quarter and an income tax expense of $1 million for the same period last year. The tax benefit is a result of a GAAP-related tax asset increase related to our activities in Israel. GAAP net income for the first quarter was $14.2 million compared to GAAP net income of $9.8 million for the previous quarter and GAAP net income of $20.8 million for the same quarter last year. Our non-GAAP net income was $16.5 million compared to a non-GAAP net income of $14.7 million in the previous quarter and a non-GAAP net income of $23.3 million for the same quarter last year. GAAP net diluted earnings per share was $0.32 for the first quarter compared to $0.22 in the previous quarter and $0.47 net diluted GAAP EPS for the same quarter last year. Non-GAAP net diluted earnings per share was $0.36 compared to a non-GAAP net diluted EPS of $0.32 in the previous quarter and a non-GAAP net diluted EPS of $0.51 in the same quarter last year. Turning now to our balance sheet. As of March 31, 2017, cash, cash equivalents, restricted cash and investments were $247.6 million compared to $224.3 million at December 31, 2016. During the first quarter of 2017, we generated $25.7 million in cash flow from operations. AR balances continue to increase this quarter and were $79.3 million as of March 31 compared to $71 million last quarter. This is mainly a result of the concentration of sales towards the end of the quarter where customers start to increase their procurement and inventory levels in anticipation of a stronger seasonal quarter. As of March 31, 2017, our inventory level, net of reserves was at $60.9 million compared to $67.4 million in the prior quarter. Moving now on to guidance for our second quarter 2017. We expect revenues to be within a range of $120 million to $130 million and gross margins to be within a range of 32% to 34%. I will now turn the call over to the operator to open it up for questions. Operator, please. Well, I think basically we're executing the plans that we presented last quarter as well and it includes increasing the amount of things on all fronts. One phase inverter, three phase inverters, optimizers, as well as storage were ---+ in one hand, we devoured approximately 50% of our R&D resources for cost reduction and about 50% to development of new products. In the three phase, the ratio is a little bit more into developing new products, since we need to increase the size as in the line of three phase offering we have and that's bigger part of the plan going forward. Our long-term plan is to reach in the end of 2018 more or less 50%-50% between residential and commercial. And 50%-50% between US market and markets in Europe and in Asia. We are above 25% today and moving to the direction of reaching 50% sometime by the end of 2018. For the full year as we mentioned, we assume that for the full year, the ASP erosion will be in the range of 10%, 7.5% to 10%. Since last quarter, the blended ASP eroded by 4% but that's due to the fact that the portion of the three-phase inverters grew. So, overall, we believe that we are right on the line of the expected ASP for the year. 65%, 35%. 64% (multiple speakers) US, 36% outside of US. That was, by the way dollar basis, not megawatt basis. And Australia and Japan are far from being 10% percentage each. Rest of the World was 10%. It was ---+ close a little bit, but it's ---+ I don't know the exact number a little bit above 10%. I'm not sure what it is. 11%, 12% in this range. I don't think we have it with us. We can try to get it for the follow-on question ---+ for the follow-on call we will have. So in general, as I mentioned in the last call, we expect R&D, of course, to continue to increase at ---+ last quarter we said, at approximately 20%, but again, it's an investment that we're always happy to do and make. And we see more opportunities, we have the ability, we have the financial means, and we have all the desire to increase it even more, if we can. Sales and marketing are again, expected to increase, but in general, we see them increasing more in line. The revenue growth may be slightly lower because there aren't economies of scale. And on G&A, excluding one-time events or allowance for doubtful accounts, we expect relatively flat G&A along the year. Thank you very much. Well, today, all this 3 kilowatt, 3.8 kilowatt, and 5 kilowatt that we produce in Q1 are all HD-Wave. By Q3, as we reported last quarter, by end of Q3, we will be producing only HD-Wave and all one-phase inverters, but the backup battery system or the inverter for the backup battery system will remain the older (inaudible). We believe so. No. So, we see demand for StorEdge still. The highest demand you can find is in Germany, followed in Europe by Italy. Australia is probably in the size of Germany, maybe a little bit smaller, and you see demand coming from Hawaii. I think that what you see today is that most of the third-generation battery system is based on the PowerWall and other options were installed. Majority, I think ---+ it's really pretty close to non-battery, it's not installed yet. We are expecting to start the new generation of batteries with Tesla and with LG to be installed sometime from mid-May and on. Very close to 50-50. The commercial, more or less, very high-level numbers, because it all depends on what project is installed and commissioned when, but around 10%, 15% are Rest of World and the remaining 85% is split pretty much 50-50 between the US and Europe, a little bit more to Europe, but very close to 50-50. As I mentioned during I think all the calls last year, the problem with commercial is is ---+ its sale is bigger dramatically, the [neat] sales of residential, of course, and that you have timing issue between the time that you sell and install et cetera. So it's still not a very smooth drop, but yes, we see increase in ---+ nice increase in the US commercial inflation. I think there is never end to a work of automation until all lines are being dark and people will not be in the sector, it will take many years. I think you refer more to the optimizers. Optimizers, we are now everything that's produced today in Europe, produced from fully automatic line. We are ramping up now two automatic lines in China. They are supposed to be ramped up before the end of the quarter. From this point on, about 50% of everything we will be producing in China will be coming from automatic line. And then we are ramping up another automatic line in Europe. So I think that by the end of the year, I would expect that 80%, 85% of all optimizers will be produced from fully automatic lines. Saying that we still have lots of information between the S&P and the top level of [family] what's called AAC, Automatic Assembly Center. Lots of automation out of automatic testing and handling and MI soldering and lots of other automation that is coming through the year and with every equipment, you improve the statistical reliability and reduce a bit the cost of the assembly. In South America we are not active. We see lots of emails coming from Brazil, from Chile, a little bit coming from Argentina. But we are, to be honest, not yet active there. We are ---+ very small company but we are very far from being a big company. We had to, therefore, decide where we invest and to build our geographical offices in the smart way that we can build them, recruit the right people, merge them with an organization, verify that the culture is same. So, currently we cover North America. We have access to Mexico, Guatemala, a little bit in Central America, but we do not have yet presence in any significant business in South America. Yes, it's very small for now. Let's differentiate between the receivables and payables. From the receivable side, as I mentioned on the call, the first quarter is a quarter that if we usually characterize with bad weather in Europe and at least in Northeastern part of the US this year, there was also a little bit of California. In general, that (technical difficulty) we do not see linear sales throughout the quarter, but we rather see sales starting to pick up and be much more intensive towards the end of February, beginning the March because most of the installers are stocking up towards the strong months of installations from April to September. And this inclination combined with the (inaudible) means that AR is increasing. From payables point of view, this is again a natural growth related to the fact that as we see the volumes increasing and we see more demands coming along, then we are preparing by increasing inventories and buying more and more product, as well as having our manufacturers producing at higher pace. In general, I can say that Europe is growing beyond our expectations or I would say across all regions. But I can say that the seasonality and the growth that you see is coming mostly from the Netherlands, where we mentioned before, that is a strong region for us, Germany. And I think across the board, around everywhere, including Italy and other countries as well. But I think the Netherlands and Germany, are the most leading one. We are working hard to find interesting candidates. So far we ---+ eventually, we do not have nothing to report. In summary despite tough years market conditions, we concluded this quarter with strong financial results in all parameters and growth of our global footprint, including the new office in India and increased sales Japan and Australia. We remain confident that the next quarters will show continued growth for SolarEdge, and that our significant investment in R&D will yield positive results for innovating technology as we maintain our leadership position in the market. Thank you very much for joining us on today's call.

2017_SEDG

2016

CSL

CSL #I think our goal is to have CIT above 20% on that. And so I think if you take the one-times out, we've got work to do and new product development, but as we see it now, again, 20%-plus is our goal. With purchase accounting, initially it will have a little bit of a dilutive effect, but we expect these margins to get very close to the base business quickly. Certainly as we move in and throughout next year, towards the of the year we would expect margins to be close to the base levels. Well, we look at that market and we think with the Star Aviation acquisition it puts us around that ---+ I'm going to say just broadly, 15% to 25% market share. I think with the work we've done with the innovative universal adaptive play, the receptivity we've had from OEs, aerospace manufacturers and that, we definitely want to be higher than 25% of this. We want to be ---+ have a leading position in this market. So I'm not going to give you an exact number, but obviously there are other competitors. But we'd like to increase over the current market share we have right now as a percentage. Honeywell and Panasonic are the two biggest players. The replacement market is probably in that low single-digit, <UNK>. Yes, don't think weather was a factor, but I think maybe similar to the third quarter last year, there were some labor issues that I think were a little bit of a headwind for us. We also expected maybe a little bit higher growth than we experienced, but again, I think labor was a bit of a factor and I do think the margin performance here really is the story. And we're just very pleased that the business is performing at these margin levels. Sure. Right now, <UNK> just said earlier, MDI prices, we see some increases coming there and so we want to make sure we get ahead of that. I would say in the rest of the raw materials it's been fairly flat as <UNK> said earlier as well, when we look at that price to raws ratio in the fourth quarter, we'll start to flatten out, so right now we're seeing relative stability, but obviously if anything came up, we will get ahead of that. Again, we're still focused on growing the business through investment for organic growth and acquisitions and where we're hopeful that we're going to have larger acquisitions to announce, that remains our number one priority. So assuming that we are successful on the acquisition front, I think you can expect us to continue to repurchasing shares pretty much at the same levels as you've seen in the last few quarters. If things are not as actionable as we believe they will be on the acquisition front, then we will be more aggressive on share buyback, but right now we remain optimistic and hopeful that we can be successful on some significant acquisitions. Not really. I don't think so when you compare the systems to standard on an overall basis. Yes, <UNK>, I think we said it in the acquisition, we still feel very strongly about the actions we are going to take to drive margin improvement, as well as sales growth, but really margin improvement in that business, and the footprint consolidation has started. We've dealt with a couple of facilities, we've moved the headquarters, we're working on a vertical integration right now, and we deployed significant amount of capital there to drive that. So as we start to roll this out, our goal all along was to get this margin back to the low 20s, and then when you add the purchase accounting that remained, we'd be right in line with that 30% margin. So that's the track and I think it will take a few years to get there so we would like to see a steady progression as we take these actions and really just continue to improve every quarter as we go through that improvement, and then in the three to five year range, get to that 20% mark. Yes, it is almost all goodwill. Yet it will carry over into, certainly into the Q1 of next year. It may also carry over into Q2 of next year, so we will have some continuing China startup expense. I would sort of plan for really most of the first half of next year. We effectively have two facilities there now, so there are some redundancies and some inefficiencies that we are capturing in our number. We brought a new leadership team in just under four years ago. They put together a great plan, it's centered around really factory consolidation, then working on the factories for improvement, and both that entailed our operational excellence program, COS, Carlisle Operating System, as well as investment, capital investment in the processes, investment in the sales force, getting focused, and really, they are looking now to drive leverage off of that more efficient production base. So it's been study, the team has done a nice job, they've stuck to their strategies and have really driven the operational efficiency through the business. In CIT. Well, you can see by the continued ramp-up of the ARINC 791, I mean, we are really pleased with that. That's bringing along some other opportunities that will hopefully unfold in 2017. It brought along the Star Aviation acquisition. Micro-Coax has some very interesting products that we are seeking to push development on at launch over the next couple of years. And then, when we look in the regular business, CIT continues to seek to be a bigger player on the aircraft platform and our relationship with Boeing, our relationship with Airbus, and these other major airline manufacturers, we want them to look at us to be a solution provider. I would note that with our Star Aviation acquisition we were able to acquire a nice engineering center in Everett, Washington, that works closely with Boeing up there. We hope that will drive other new product ideas for this business. Yes, <UNK>, I don't know. I think maybe on the margin a little bit, but I don't think it's really going to change our forecast certainly for the quarter. Thanks, <UNK>. Well volume recovery would certainly help, but the actions we're taking, we're driving for that single-digit as a minimum, and return to profitability, and strengthen the cash flow and everything else, at the volume levels we kind of project right now. Yes, moving into 2017, as we said, I think we're going to see more of the same. We've mentioned it a couple times, we like what we've done in the margin profile, we see raw material stability, we see relative stability sequentially in pricing, those are good indicators. On the growth side, the US markets are still strong. We see fluctuations within each of the verticals that we serve and some differences there but that occurs in any year. So I think what <UNK> mentioned on the labor, we are getting to the end of the season, we think there's good backlog and we think there might be some pressure on labor. So, I think things are pretty much as we said, we're looking for stability and moving generally in the direction we've been headed so far this year. Thanks Megan. This concludes our third quarter 2016 earnings call. I want to thank everyone for their participation and we look forward to reviewing our year-end 2016 performance with you at our next earnings call. Thanks and good night.

2016_CSL

2016

SWM

SWM #Thank you, <UNK>, and good morning, everyone. Although we were pleased with our first-quarter adjusted EPS of $0.80, we highlight that constant currency net sales and adjusted EPS were up 17.5% and 12%, respectively. Consistent with the factors incorporated into our guidance, LIP volumes remain strong. RTL volumes were weak. Argotec performed well. DelStar's top- and bottom-line reserves continue to be hampered by certain volume challenges. And currency had a negative impact across our business. Other key factors of first-quarter earnings were a first-quarter loss on our Chinese Recon joint venture due in part to sales signing and a gain on the sale of water rights. However, normalizing for these factors, first-quarter adjusted EPS marked a solid start to the year, and is consistent with assumptions we incorporated into our full-year adjusted EPS guidance of $3.15. Broadly speaking, execution was strong across the business, and we maintained our focus on the 2016 key strategic priorities that support our long-term transformation. Non-tobacco sales presented nearly 40% of our total net sales in the first quarter. Trailing 12-month free cash flow remains stable, although we expect it to trend lower through the year, reflecting our expected decline in earnings versus 2015. In our engineered paper segments, LIP momentum from 2015 continued through the first quarter. Though, as we have discussed, we believe much of the trend is related to customer inventory builds which we expect to unwind in the coming quarters. In total, our cigarette paper volumes, including our Chinese joint venture, CTM, were up 8% in the first quarter driven by modest LIP growth and supported by growth in other cigarette paper products such as [volume]. Our non-tobacco paper volume showed some strong growth, while our higher-margin battery separator was up, the bulk of the increase was from printing and writing [paper] volumes. First quarter Recon, volumes including the new Chinese joint venture, CTS, were down 24% in the first quarter, driven by a difficult comparison for French RTL mill and a low-volume quarter for CTS. Regarding the difficult comparison for the French mill, recall that first-quarter 2015 had 6% volume growth, as orders shifted into that quarter following a full quarter of 2014 labor disruption. While Recon has presented volume challenges accompanied by [trade equality] timing issues of Q1, reconstituted reserves are consistent with the assumptions we made in our annual guidance. All told, versus last year's first quarter, the engineered paper segments had generally flattish overall volume and some mix improvements. With respect to CTS, it is still in the process of normalizing its sales and production partners, as quality profit and losses have exhibited significant [higher AT] since late 2014 launch. The JV's low volume in the first quarter of 2016 represented a large decline versus the first quarter of 2015. And it's essentially tied to the timing of customer orders. We expect the remaining quarter of this year to have higher volumes, and we expect that CTS will generate profits over the remainder of the year. Regarding marketplace trends, our key customers have reported consumption trends that show sustained improvement versus historical smoking attrition rates. Europe is showing stability, with indications that lower consumption of illicit trade cigarette is benefiting the internationals which comprise the majority of our customer base. In the US, generally lower attrition rates, meaning more favorable trends continue; while data coming out of China indicates that although smoking trends have turned from slightly positive to slightly negative, we're still seeing solid performance on the premium brands our joint ventures supply. Lastly, I would like to comment on our 2016 segment priorities which we outlined in February. As demonstrating our results, we believe our LIP share continues to move marginally higher, though the recent inventory build somewhat cloud our ability to completely isolate our share gains. Also, you recall that last year we initiated LIP patent infringement actions against a competitor, to support our LIP margin and protect our intellectual property. While we have received a favorable verdict in one patent suit, it is being stayed, pending appeal. The other three LIP patent suits remain pending. At this point, while we are pleased to with the progress of our LIP litigation, we cannot give any assurances to its ultimate outcome. We also are progressing with our programs to apply a plant fiber reconstitution technology outside of tobacco, and believe that this has long-term potential in the cosmetic and food and beverage industries. I will now turn the call to <UNK> to review AMS. Thank you, <UNK>k. AMS segment sales performed to our expectations in the first quarter. We had very strong performance from the newly acquired Argotec business, while DelStar experienced an organic sales decline of 5%, or 4% on a constant currency basis. In addition to the currency in oil, gas, and mining themes we have discussed in recent calls, important drivers of the organic revenue decline are the exit from some low-margin industrial business and significant lumpiness in certain customer orders. For example, one particular industrial customer placed an unusually large order in the first quarter of 2015, and the quarter-over-quarter sales decline attributable both to this customer alone accounted for roughly half of the first-quarter sales decline. Despite these sales challenges, DelStar delivered bottom-line results consistent with our expectations, in part due to effective SG&A management and manufacturing cost reductions implemented late in 2015. While Argotec is not part of our organic growth, first-quarter sales showed quite healthy year-over-year growth with particular strength in high-value service protection products, which is positive for our mix. This strength was in part due to a first-quarter customer inventory build that will likely result in softer second quarter from both a sales and margin perspective. Regarding execution of our 2016 strategic priorities, we remain highly focused on the achievement of Argotec's financial plan and optimizing the AMS platform, which we expect to result in margin improvements within DelStar over time. 2015 was a year of significant growth investment for us, with integration of two bolt-on acquisitions and the expansion in Poland. These investments were all strategic, and support our long-term plans for the AMS segment, but admittedly consume much of management's time and attention. With those activities behind us, our immediate focus is on driving improved margins from our existing operations. The referenced low-margin products exit support this effort, though they will continue to impact organic sales growth for the next several quarters. We expect the sales of newly developed products to play a key role in reestablishing consistent long-term organic growth for the base DelStar business. We also expect to benefit from a broad-based increase in industrial end-market activity, which could increase demand for specialty filtration and other products servicing the global oil, gas, and mining sectors, as well as transportation and construction; though the timing of such a rebound is unclear. We also believe we can expand our margins, this year and beyond, as DelStar increases its focus on high-value products and begins to realize benefits of SWM's lean Six Sigma expertise. Key 2016-2017 actions include launching an initiative put in place, a segment-wide common ERP system, as well as continuously enhancing operational and financial analytics to bolster our business intelligence capabilities. We've already identified potential areas for meaningful improvements, particularly in operating cost, efficiency gains, and production mix management. We're also advancing our development of unique next-generation filtration materials for the semiconductor industry, as well as developing commercial plans to cross-sell AMS segment products to existing customers. As we have mentioned, we see promising opportunities to leverage Argotec's specialty film capabilities. I'll now turn the call over to <UNK>. Thank you <UNK>. I'll now review the financial highlights from the first quarter. First-quarter consolidated net sales grew 14.1%, or 17.5% on a constant currency basis, compared to the first quarter of 2015. The quarter benefited from the customer-driven LIP inventory build which begin late last year, and the addition of Argotec. RTL volume, outside of our CTS JV, was weak on a percentage decline basis given the difficult comparison <UNK> mentioned, but was generally in line with our expectation. First-quarter 2015 EP segment net sales were down 2.6% versus first quarter of 2015, but increased 1.4% on a constant currency basis, driven largely by LIP. Recall that with the consolidation of the former engineered paper and Recon segment, engineered papers volume now consists of all cigarette volumes, non-tobacco papers, and all of our reconstituted tobacco products. In general, LIP cigarette paper and reconstituted tobacco products are our highest-margin products, followed by non-tobacco specialty papers such as battery separators and certain high-value cigarette papers. Our lowest margin products are commodity-grade cigarette papers and non-tobacco paper filler volume such as printing and writing, and food service papers. With that context, EP segment volumes were flattish, and price of mix were a net positive. Within the AMS segment, net sales were up significantly in the first quarter versus 2015. However, excluding the effects of the Argotec acquisition, sales declined about 5% for the reasons <UNK> detailed. Consistent with EP trends of strong LIP and other cigarette paper volumes in general, we saw good EP segment margin performance, with adjusted segment margins up nearly 400 basis points ---+ versus last year ---+ LIP growth and other positive factors and cost controls more than offset RTL headwinds, LIP pricing concessions, and negative currency impact. The AMS segment adjusted margin improved by 240 basis points due to the Argotec acquisition, and referenced sales and mix timing benefits. Shifting to consolidated earnings. First-quarter 2016 adjusted diluted earnings per share from continuing operations was $0.80, and included a currency impact of $0.03 and a non-operating gain of $0.04 from the sale of water rights, which was factored into our guidance. Recall we had a $0.09 non-operating gain from water rights in last year's second quarter. Importantly, as <UNK>k mentioned, quarterly variability of our new Chinese Recon JV makes it difficult to annualize our first-quarter performance as it relates to achieving our annualized adjusted EPS guidance of $3.15. While we expect the JV's EPS contribution to grow versus the $0.22 they generated in 2015, they were essentially EPS neutral in the first quarter due to a CTS timing loss offsetting the CTM paper JV contribution. Normalizing for the water rights and the Chinese JV quarterly variations, we consider our first-quarter results a solid start to the year. And we believe the trends experienced to date are consistent with those we factored into our 2016 outlook. Our effective tax rate for first-quarter 2016 increased by 360 basis points, driven by both earnings mix and the expected reduction in certain foreign tax credits. Lastly, we detailed in our fourth-quarter earnings call that our 2016 outlook included a $0.10 hit from currency translation, with the actual impact to first quarter being $0.03. However, all else being equal, if exchange rates, particularly the euro to dollar ratio, remained at current levels through the rest of the year, this could represent positive upside to our guidance. Following our second quarter, we will reassess the impact of currency movements. We do not intend to revisit guidance every quarter based on currency fluctuations. First-quarter 2016 free cash flow was $13 million, and trailing 12-month free cash flow has remained stable. However, given the expected decline in adjusted EPS reflected in our guidance, we would also expect trailing free cash flow to soften as we progress through the year. Per our typical seasonal pattern, we expect to generate a significant portion of our free cash flow in the second half of the year. From a leverage perspective, for the terms of our new credit facility, we remained at 2.3 times net debt to adjusted EBITDA. Now, back to <UNK>k. Thank you <UNK>. Although we were pleased with first-quarter performance, it was consistent with our expectations, and we made progress on our 2016 priorities as we drive our strategic transformation. With approximately 40% of our current revenue mix on non-tobacco areas, our transition from a tobacco-driven paper company towards a more growth-oriented, diversified, industrial manufacturer of high-value products has good momentum. We appreciate your continuing interest and support. That concludes our remarks. Catherine, please open the line for questions. So, as we said, we are pleased with the positive ruling. Nothing is final, since the decision has been stayed, pending a ruling on appeal. As it relates to the second part of your question, we can't elaborate on the specifics, other than our view is that if we go back with the bigger picture, we have ---+ they have lost a very strong position, both for direct selling and through our licensee, DelStar. On the LIP market segment we continue to, we believe, gain incremental share all the time. And this rule in terms of infringement action is to really secure our position and also protect our emulsions. Yes. I think part of that is linked to demographics and a general higher sense of awareness, both at the government level and within the population about health matters, and also the healthcare costs for a country of having such a large population of smokers. As we released to you all, this new tobacco product directly is going to set the agenda for the next several years. As you know, this may change in packaging, which is based on different levels of moving towards plain packaging, and flexibility at the country level within the EU to adopt ever increased safety warnings or even a complete shift in plain packaging. So that's, I would say, for our customers, it's a continued battle beyond May as to whether countries will adopt the plain packaging definition. And then down the road, several years from now, the ban of menthol in cigarettes, the use of menthol in cigarettes, which obviously could reduce the amount of [actual rate of] attrition in smoking rates, but it's years away. But in my mind, the main risk remains the economy and excise tax increases that governments may decide, which is unrelated to the tobacco product going into it. It appears to be dependent upon the market for oil and gas. And (multiple speakers) mineral extraction. Sure. One that comes to mind is semiconductor manufacturing, where the purity of the materials that are used in manufacturing a semiconductor have a direct relationship with the ability of the semiconductors to pack more computing power onto a single chip by decreasing the size of the space between the leads inside the computer chip. And so we are investing in products that will allow that to happen. If I may, <UNK>, I think the common theme [acquired] across the market that we see having the higher attractiveness is filtration. And so we are building for a base of water filtration. And we are obviously getting the headwind on oil and gas, which uses hydraulic filtration media and so forth. But we are refocusing instead of moving to more commodity industrial or consumer products, trying to reinvest and increase our [pricing and seeing] demanding filtration indications. So, as we stated in February, our short-term priority is really integration of Argotec and building the AMS platform. Now over the last several years, we have built what I would call a healthy pipeline of opportunities with the addition of film and surface protection through Argotec; that obviously add some additional fields, we are invested in in terms of assessing opportunities. We have capacity with our credit facility. But we also have demonstrated, we continue to demonstrate patience focusing on quality assets and financial discipline as it relates to valuation. So there's nothing fundamentally different when I look at the market or the transactions ahead of us right now. And we continue to apply, again, the same patient and highly disciplined approach, with a clear focus on how do we find synergistic acquisitions as we build the AMS platform (inaudible) to our businesses that we have put together over the last three years. You mentioned price was flat. What we said is the price mix was actually a little bit of a positive in the quarter, and that has a lot to do with the strength of LIP, per se. But I think that before the vision is obviously we see opportunities for better environment, more favorable environment in terms of volume, trying to limit the attrition to a minimum. And we have obviously good momentum. As we go into the second quarter, it relates to an improved mix of products within engineered papers that is obviously critical to our earnings guidance. Thank you, Catherine, and thank you all for attending the call. We certainly appreciate your interest in SWM. <UNK>, <UNK>, and I will be in our offices today, and if you have any further questions, please give us a call. Have a nice day.

2016_SWM

2016

WEC

WEC #Well, there were no refunds. What we did, <UNK>, just to be clear, is we accrued under the sharing mechanism ---+ we accrued $18 million pretax in the third quarter. And then based upon the fourth-quarter results we get to a final number, the $18 million could increase, it could decrease because the accounting period you look at for sharing is the calendar year. Yes, and there is really not a refund, it is really just paying down a regulatory asset or reducing a future rate increase. So it is not like we are going to give cash back to customers, we will be able to reduce or not increase rates in the future related to it. No, and let me just sort of clarify it to make sure everybody understands. So I expect next year, if you look at the system modernization program, so this would be basically the replacement of the cast-iron mains to new meters, whatnot. But that will be nearly $300 million of spending in 2017. And that will go ---+ going back to <UNK> <UNK>'s question, that $300 million will go through the QIP rider. In addition to that, I expect that we are going to have to spend $50 million on the safety-related things at the Manlove storage field. Now that $50 million, <UNK>, I think it is spread, <UNK>, over three or four years. It is spread out a few years, but at this point I would not expect to put that $50 million through the QIP writer. I hope that wasn't clear as mud. (Multiple speakers). The other part is a variety of different items. And like <UNK> said, those items ---+ I mean it ranges from additional infrastructure work to some meters that are outside of the footprint, also some software in there. So those there do not go through the rider. However, we do have depreciation on an ongoing basis and that is really filling in some of that normal depreciation in the area. Well, just to be clear, so this is related to methane leaks on a gas distribution system in Chicago. And my understanding of the approach that the team uses there to prioritize projects, it already takes into account leak rates, methane leak rates. So there is already the attempt to build into that process that variable, if you will, in trying to reduce methane leaks. So I would view that we are already trying to address that in the way we do the prioritization. Certainly if there is a better more precise way to factor that into the process, that certainly is something we can consider. But it is already being considered in the current prioritization process. Yes, not a lot of color that I could give you, <UNK>. My understanding was that this would be a study that the state government there would kick off and look at the feasibility of that, what would it cost, etc. But not any real color that I can give around that. Well, I think as I look at the capital spending in response to one of the previous questions, we certainly view that what we put on the table for retail CapEx and the retail utilities, what ATC has put on the table for inside the footprint, we all view that as being supportive of the earnings per share guidance range. The way I would answer your question, <UNK>, to actually kick ourselves up in that range we are going to need to be able to be successful with some of these transmission developments outside of the traditional footprint at ATC. So I think if I certainly saw in a significant way some successes outside the footprint at ATC, that would certainly give me some comfort to push our forecast up but still within that 5% to 7% range. Right. Go-ahead, <UNK>, I am sorry. Two things though that I think you should keep in mind, <UNK>, one is remember we had this additional bonus depreciation has kind of been in the middle here. So that was a $1 billion cash tax impact. The other thing that perhaps people don't talk about quite as much, since we talked about a 5% to 7% earnings per share growth range we have seen allowed rates of return, most notably the allowed rate of return in FERC go down. So there have sort of been some put and takes. Certainly there have been some increases in our projected level of capital spending, those are the puts. The takes, we certainly had bonus [depreciation] and some reduction in allowed rate of return. Yes, so they increase slightly in 2017 and 2018 about 1% and it's not until like 2019 or 2020 that we going up at a 6% rate. Yes. Well, as you got to 2019, so the figures that <UNK> talked about, if you do it in a total rate, if you look at it in total rates, my recollection is it's about a 1.25%, somewhere that range, a 1.25% uplift on total rates. Correct. So the bonus appreciation is through 2019 and the new additional CapEx would qualify for the bonus. Yes. So when you look at it the $1 billion was with the original plan. I'm sure it is a couple hundred million dollars more. We will probably be a cash taxpayer in like 2018. Okay, well thank you very much for your questions. That concludes our conference call for this afternoon. Certainly if you have any more questions, please contact Beth Straka or <UNK> <UNK>, 414-221-2592. Thank you.

2016_WEC

2017

OXM

OXM #Thank you, Shannon, and good afternoon, everyone. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the fe<UNK>al securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results of operations or our financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-<UNK> We un<UNK>take no duty to update any forward-looking statements. During this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted un<UNK> the Investor Relations tab of our website at oxfordinc.com. Please note that all financial results and outlook information discussed on this call, unless otherwise noted, are from continuing operations, and all per-share amounts are on a diluted basis. As a remin<UNK>, the results from the Ben Sherman business are reflected as discontinued operations for all periods presented. Also, on April 19, 2016, the company acquired Southern Tide. Please note that fiscal 2017, which ends February 3, 2018, is a 53-week year with the extra week included in the fourth quarter. And now, I'd like to introduce today's call participants. With me today are Tom <UNK>, Chairman and CEO; and <UNK> <UNK>, CFO. Thank you for your attention. And I'd now like to turn the call over to Tom <UNK>. Good afternoon and thank you for joining us. We are proud of our solid year-over-year growth for sales and EPS in the third quarter. More importantly, we believe we are well-positioned to take advantage of the emerging optimism in the consumer marketplace during this holiday season. The positive momentum that resulted in a 4% increase in comparable store sales in the third quarter gives us confidence that we will continue to drive growth in the fourth quarter. Our businesses have excellent plans centered on compelling product and innovative marketing campaigns that will set us apart in this highly competitive and promotional holiday season. Before I dive into more detail on the third quarter results and our plans for holiday, I'd like to take a few minutes to talk a bit more broadly about what we have accomplished at Oxford this fiscal year. I'll walk you through the progress we have made on several key initiatives. Perhaps our most important initiative in 2017 was our focus on improving Tommy Bahama's operating performance, and we are seeing real success. Great product supported by newly energized marketing campaigns have driven positive mid single-digit comps at Tommy Bahama in each of the first 3 quarters of 2017. Gross margin has expanded year-to-date as we focused on improving IMUs with cost reductions and selected price increases and have made improvements in how we clear goods. Our multi-pronged clearance strategy added very selective end of season markdowns in our own stores and improved the merchandising and product presentation in Tommy Bahama outlets. We have also focused on leveraging existing infrastructure to help manage SG&A. All this has had a positive impact to the bottom line with adjusted operating margin expansion of 100 basis points year-to-date. Another priority for fiscal 2017 across Oxford is to play to our strength in full-priced e-commerce and mobile, which is our fastest-growing and most profitable channel of distribution. So far in 2017, 17% of consolidated sales have come from the e-commerce, up 50 basis points from last year. In 2017, we are making additional investments that will further our commitment to serve our customer when and where she wants to be served and allow her to reach us when and how she wants. Dovetailing with our digital strategy is the ongoing investment needed to ensure streamlined fulfillment processes and holistic inventory management. We believe that we're towards the front of the pack with our technical abilities in digital and omnichannel and view this as a true competitive advantage for Oxford. Fortunately, because we have experienced such great success in our e-commerce businesses, we recognized earlier than many in our sector that a cautious approach to store growth made sense. And as a result, do not believe we are currently over doored. While we do believe that we have the opportunity for judicious store growth in the years to come as the right bricks-and-mortar concept in the right location remains an outstanding vehicle for delivering our brand message, we have made adjustments to our investment strategy in 2017. This includes a more rigorous scrutiny of all upcoming renewals and a conservative store opening cadence. Tommy Bahama has opened 4 new stores, including a very successful retail restaurant location in Plano, Texas, and closed 5 locations this year. Lilly Pulitzer currently has only 58 stores, having added 5 new stores and acquired a dozen licensed signature stores this year. Lastly, in fiscal 2017, we are focused on managing our exposure to department stores, which currently represents 16% of our revenue, down over 100 basis points from last year. While we recognize that department stores still provide an important gross margin contribution in each of our businesses and can still be a good vehicle for customer acquisition, we need to be careful to not let their struggles end up tarnishing the integrity of our brands. As the traditional department stores work to enhance their relevance by revising their business models, we will continue to put the integrity of our brands first by monitoring, managing and, in some cases, reducing our exposure to the department stores. So we've accomplished a lot so far in fiscal 2017. I'd like to take a moment and talk about our brands. The highlight for me of Tommy Bahama's third quarter was their particularly strong comps at 5%. As we look forward, it is important to remember that 75% of Tommy's fourth quarter business occurs in December and January, so we have quite a way to go. I mentioned a minute ago Tommy Bahama's marketing, which we believe is fueling their business this year. Last week, Tommy moved away from more traditional holiday marketing and pivoted to a resort offering online and in their retail stores. They also sent a substantial catalog similar to the very successful Spring '17 catalog. This holiday catalog recast Tommy Bahama's tagline, Live the Island Life, to the seasonally appropriate, Give the Island Life. It includes a compelling offering of colorful resort apparel and accessories, getaway gift shopping pages and remin<UNK>s of the won<UNK>ful food and beverage component of the Tommy Bahama lifestyle. We believe this level of innovation for the holiday season will differentiate Tommy Bahama and entice our guests. Lilly Pulitzer's third quarter results, as in the past, are dominated by the impact of their semiannual flash clearance sale. This year, in just 3 days, Lilly fans purchased over $24 million of merchandise at a very solid gross margin. But this year, the flash sale also seemed to represent an inflection point for the Lilly business. Since the flash sale, Lilly's full-price business has moved back in the positive comp territory and the momentum continues. Lilly continues to energize their customers with fantastic marketing initiatives. After a successful collaboration with Starbucks and S'well water bottles this spring, Lilly rolled out limited edition S'well bottles on December 1, with 3 classic Lilly prints chosen earlier this year by Lilly customers. These bottles were sold out on the website in less than 30 minutes and flew off the shelves in our stores, reminding us once again how enthusiastic the Lilly customer is about this brand. The holiday season is also full of fun products such as new Luxletic items, pretty holiday dresses, compelling gifts with purchase and a rich assortment of giftable items at accessible price points. All in all, we believe Lilly will deliver very strong fourth quarter results. Both Southern Tide and Lanier Apparel had a very nice quarter as well with each generating year-over-year improvements in sales, gross margin and operating margin. We are particularly proud that all 4 of our operating groups had solid improvements in their adjusted third quarter results. In closing, we are seeing a marketplace that, while improving, remains very competitive and promotional. Oxford's portfolio of differentiated authentic brands like Tommy Bahama and Lilly Pulitzer, represents lifestyles and a culture that consumers want to be a part of. Whether it is Tommy's call to Live the Island Life or Lilly's Palm Beach resort chic, we give the consumer the reasons she needs to look beyond price and discover unique products that remind her of happy times and happy places. We are confident that our businesses, powered by talented teams, have tremendous opportunity for future growth. With that, I'll now turn the call over to <UNK> <UNK>. Thanks, Tom. I'd like to walk you through our consolidated results, some additional details for our operating group and our guidance for the full year. Please refer to our press release issued earlier today for additional information. As Tom mentioned, we are very pleased with our third quarter results, consolidated net sales increased 6% to $236 million. On an adjusted basis, consolidated gross margin expanded 60 basis points to 53.7% and adjusted EPS went from a loss last year of $0.07 per share to earnings of $0.17 per share, with improvements in all operating groups in the quarter. We have estimated that we lost approximately $2 million of sales and $0.05 in earnings per share due to the interruptions caused by Hurricanes Harvey and Irma. However, we also recognized some tax benefits in the quarter which basically offset the EPS impact of the hurricanes. Once again, Tommy Bahama had a very good quarter. Our sales were down a bit in the quarter, this was due to not anniversarying e-commerce flash sales from last year. Importantly, we saw nice sales increases in our full-price direct-to-consumer businesses, driven by the third quarter in a row of mid-single-digit comp increases. There was solid improvement in Tommy Bahama's operating results in the quarter. For the year, we still expect Tommy to grow the top line in the mid-single digits and expand operating margin by over 100 basis points. Lilly Pulitzer sales increased 13%, driven by the very successful end of season semiannual flash sale. Not only is this a great brand-appropriate way to clear end of season merchandise, it also delivers a very healthy gross margin. For the year, we expect Lilly sales to increase in the mid-single digits and adjusted operating margins to remain very healthy at around 20%. Sales at Lanier Apparel increased 23% in the third quarter and operating margin expanded 250 basis points. Much of this improvement was due to a shift in Tommy. For the year, we expect mid single-digit top line growth and operating margin in the mid-single digits. Southern Tide had a good year-over-year improvement on both the top and bottom lines in the quarter. Sales increased 6% and gross margin expansion drove a 400 basis points improvement in adjusted operating margin. Southern Tide in its first full year of operations with Oxford is on track to deliver revenue of approximately $40 million and an adjusted operating margin in the low double digits. Our balance sheet remains strong. We continue to reduce inventory balances with a 7% year-over-year reduction at the end of the third quarter. We believe inventory levels in each of our operating groups are appropriate for planned sales. We continue to generate strong cash flow from operations. We continue to invest in our brands and pay a dividend. In the last 12 months, we have generated $131 million of cash flow from operations and reduced debt by $70 million. We ended the quarter with $72 million of borrowings and $205 million of unused available ---+ of unused availability un<UNK> our revolving credit facility and we are well positioned to support our growth initiatives. I'll now walk you through our outlook for the year. For the full fiscal 2017 year, adjusted earnings per share expected to grow to between $3.55 and $3.70, compared to $3.30 per share last year. We expect net sales to grow between $1.08 billion to $1.095 billion compared to net sales of $1.023 billion last year. Our effective tax rate for fiscal 2017 is expected to be approximately 37%, comparable to the fiscal 2016 rate. And the interest expense for the full year is estimated to be approximately $3 million. Capital expenditures in fiscal 2017, including $26.4 million in the first 9 months of fiscal 2017, are expected to be approximately $40 million. This is lower than our earlier projections as some of our projects have moved out to 2018. Our investments are primarily in information technology initiatives, new retail stores and restaurants and investments to remodel and relocate existing retail stores. Finally, our Board of Directors has approved a cash dividend of $0.27 per share payable on February 2, 2018. We've paid dividends every quarter since we became publicly owned in 1960. And Shannon, we're now ready for questions. I was just hoping we could start with Lilly. It sounds like you're seeing some really nice improvement in the full-price business in comps there. I know that the compares were a little bit tougher this quarter. But I just wanted to clarify with the positive quarter-to-date comps, does your guidance assume a return to positive comps for Lilly in the fourth quarter. Yes, it does. And so what happened in the third quarter, Cory, is really, once we got past the flash sale, which was very successful, the momentum that we had there really continued in our full-price business. So August comps in Lilly were not positive. But then September, October and since then have been really pretty good. We've been very happy with what we've seen there. And I think there's some things that account for that. They very specifically had done some things to try to create more excitement and more buzz in the brand and have sort of sprinkled those in a fairly regular basis to try to keep that excitement and momentum going in, and it's been working nicely for them, which is good to see. Okay, great. And yes, just to that point, I mean, I know we've been talking all year about some of the changes that needed to be made at Lilly with the opening price point items being reintroduced this holiday. Is that kind of part of what's driving the momentum. And are you guys doing anything else kind of differently with regards to marketing or the assortment for holiday resort. Well, I think if you look at the holiday assortment, there are a plethora of things that are available there un<UNK> $100, which make great gifting items, and I think those are important. The S'well bottles themselves were an example of that. At un<UNK> $50, we've got a lot of great jewelry items. Some of them are more than $50, but there are a lot that are sort of in that $38 range. I think the lowest-priced item we have is an $8 embroi<UNK>ed patch, which as you know, is very on-trend fashion-wise And for a patch, that's sort of a premium-priced patch, but it's still a great entry point for maybe a young person looking for a gift item to give to their friends. So we feel great about the product and the assortment we've got. And then the holiday assortment not only has gift items, but of course, things like special occasion dresses where we think we've got a terrific assortment that's really addressing the needs of our customer there in a great way and we supported that with a mailer that basically is all about occasion dressing during the holiday season. And then we've got other marketing initiatives that we've done through the third quarter and into the fourth quarter, all of which are combining to help drive the business. Okay, great. And then lastly, the Q3 gross margin expansion look better than expected even though you have the bigger flash sale and also the Tommy friends and family moving into the quarter. Are you still expecting the Q4 gross margin expansion to be significantly greater as you lap last year's write-down on inventories. And is there anything else that we should be thinking about in that line item as we go into fourth quarter. Yes, we do expect fourth quarter to have a nice expansion in the fourth quarter. The other thing, in the third quarter, Tommy did not do their flash sales that they had done the previous year. So that also had some positive year-over-year impact. But we do expect solid improvement in gross margins in Q4 still. Yes. So starting with the promo, the answer is yes. We are doing, we'll be doing the Flip Side. We think it is a great sort of less brand ---+ or more brand-friendly way to engage the consumer and give them a little reward for spending more money with us. Hopefully, getting some incremental dollars out of them. And we definitely believe that it works and it's effective. So we will be doing that. Then with regard to product and what's been driving the business. First of all, I do think there is a marketing element to it, going back to the Live the Island Life book that we did in the spring. I think we've continued to kind of play off that. Now we're going to reinvigorate that with the Give the Island Life book that's hitting homes right now as we speak, some of them are already in the homes and the rest of them, we'll be filtering in this week. But we think that's part of it. But then on the product side, there are some great successes that we've had this year. Women's has actually been ---+ have been strong for us. It's been a success this year. That has been driven particularly by swim, which has always been a strength for us in women's. But we've just had a fantastic year in women's swim, and then we expanded that offering by adding some activewear type pieces within our swim world that we're very excited about and that we think the guest is very excited about. Another big plus has been big and tall. We believe we serve the big and tall guest better than any other brand out there. For us, that's an online and wholesale business. It's a really nice business where, I think, serving the needs of an important part of the guest population. And we're being rewarded for it. And then the last thing I would point to, but not least at all, is the Boracay pant, which I believe, Ed, we convinced you to buy a couple of pairs of maybe when we saw you out in Las Vegas. But the Boracay pant has been ---+ was a great success for us online earlier in the year, and now is in stores in the wholesale accounts, and it's really, really working well. Our people are excited about it. The guests are excited about it. I'm very excited about it. And I know Doug Wood, CEO of Tommy, is excited about it. I think it represents our opportunity to have a go-to-pant in Tommy Bahama in a way that we really haven't had in a number of years. We've had nice men's pants in Tommy, but we haven't had that go-to kind of pant, and we think the Boracay can be and is that pant, which is exciting to see. No. On the inventory, no. We ---+ the hurricane was ---+ we've lost some sales from it, but there was very little long-term interruption in the stores and no inventory issues related to that. On the tax, we recognized about $800,000 of tax benefits, and there was a few different things. We had some ---+ true up of some Southern Tide returns that ---+ pre-acquisition that made ---+ that we got a benefit from. We also had an R&D credit related to some software expenditures, and then we also had one other offshore settlement that went favorably. So it was a few different items that hit in the quarter, and they are roughly $0.05 a share. So ---+ and the hurricane impact was roughly $0.05 a share, so they just happened to be pretty close to offsetting each other. No specific callouts by brand at this point. But I think with department stores, look, we're pulling for them. They're good people. We have a lot of friends there. It's good business for us. And we like the margin contribution and the customer acquisition that we can get from it. But all that said, as you know, they are ---+ a lot of them are really struggling to sort of redefine the role and relevance in the marketplace these days. And we ---+ our way of looking at it is that we want to do business where we can be mutually successful, so it's good for us and good for them. And where it's not, doesn't fall into that category, then we're going to back away from it. And what I think that means is that the department store business is probably flat at best and more likely continues to decline gradually. I don't see anything catastrophic happening in the foreseeable future. But I do think that there's a reasonably good chance that it'll continue to gradually decline. Yes. So I'll make a general comment first. We do think that what is on the table at the moment on the corporate side will be beneficial for the economy. And over the longer term, that'll be good for all of us, we believe. And then as to the specifics of how it will impact us directly in terms of taxes paid, I'll let <UNK> comment on that. Yes. Our rate will obviously go down materially, and I'm not going to try to estimate an exact number right now as there's a lot of moving pieces. Also the transition piece of offshore earnings, we don't think that's going to be a major negative to us where some companies might be in situations where that's a little bit more of a negative. So we think it's going to be overwhelmingly positive and we're still wrestling through some of the details of it. But we think it's going to be overwhelmingly positive and have a significant favorable impact to our rate going forward. On top on, it could be close to $20 million in sales, but it's not going to have a big bottom line impact as we allocate expenses on a kind of weekly basis, so that 53rd week, that month, we'll get 5 weeks\xe2\x80\x99 worth of rent, weeks worth of other major expenses, whereas some companies might handle that a little differently. So we think it'll be pretty minor in at the bottom line, but also top line impact. Obviously, that week is a week where you're right in the initial spring shipments. And the last week of our year is always a week of do they take it, goods in the last week, or they take them in the first week of the next year. Hopefully, we're projecting to get a little bit more on that last week or last month of the year due to the extra week. But on the bottom line, it's not going to be a major impact. Yes. So the Tommy Bahama Coconut Bar, it continues to perform extremely well. It has exceeded our expectations. And we're very pleased with it and excited by it, both in terms of what the food and beverage side has done. And then the improvement, and that was already a great store for us, but the improvement, it's driven in that store, so we're very excited about it. Landlords share our excitement for the Marlin Bar concept. The minor challenges, just that if you've seen at least pictures of it, it's a configuration that doesn't fit within the sort of standard configuration of life's ---+ typical lifestyle center or mall. And so it's really working with the landlords to figure out where that fits in their venues and what the leased deal looks like. But we think we'll get there. Don't have anything to announce yet on that front, but we do think that we will have opportunities to open additional Marlin Bar concept stores and restaurants. On the Asia business, I think we're tracking, right on track to achieve our plan for the year, and nothing's really changed there. Pam, as you know, for the last several years, we've focused on chopping away at the loss and reducing it significantly every year, and we will do that again this year. Then growing Australia, which is a good business for us. And then in the Japanese market, really looking for a solution that allows us to maintain a presence there while getting out of the ongoing operating losses. And as soon as we know anything more on that, we will report it. And then your last question. . Hawaii. Hawaii's great. Hawaii is on fire right now. Business is good for us there. The tourism business is up. We were talking with Doug earlier today, and there are lots of great stats on average air ticket prices have increased a lot, which is great because it means there's a lot of demand. Hotel bookings are full. We're seeing it in our restaurants and stores there. Well, I think that we are definitely a highly desirable tenant. And I think, again, as I mentioned a minute ago, this Marlin Bar concept is very, very enticing for landlords and they all want a piece of that action. It's really just working through with them and figuring out what the right locations need to look like and what the rent deals need to look like. And again, we feel pretty confident that we will have opportunities to do more Marlin Bar's and that they will be successful. We just don't have anything to announce quite yet. Yes. I think the restaurant retail concept, we have this one that opened in Plano, 4 or 5 months ago, that's just terrific. And I guess you were there, <UNK>, Yes. And I mean, that's the future of what retail is going to look like. I think venues like that, that are not so much department store-anchored but are really built around food and beverage and unique interesting retail comps, we are perfect for that type of location. Store traffic continues to be down a bit. Our conversion rates generally are rising. And I think that, that is a reflection of what's going on in the world these days, that the guests may be visiting a little less often. But when they do visit, they're probably incrementally more ready to purchase than they would have been in years past. So it's an evolving situation. But we're generating positive comps in stores, notwithstanding the fact that traffic is still drifting down. It does seem like maybe it's starting to ---+ the rate of decrease is starting to go down a bit. It's decreasing at a slower rate, which is good to see. Yes. We definitely saw that in spring with the book that I know you've seen. And you've heard those stories about guests coming in with the page that has the layouts, some sort of how to pack for your weekend getaway, and they come in, and they say I want this, meaning all of it. We love seeing that kind of stuff, and we think we're going to get a similar reaction with this Give the Island Life book, which obviously takes a slightly more holiday spin to some gifting ideas in there as well as getaway ideas. And I mentioned it before, but I think it's worth reiterating, that as of, I guess, last week, really, we have pivoted to resort in our assortment in what we're offering. And what we've realized is that for Tommy Bahama, really playing to what they're going to be doing and where they're going to be going after the holiday is really a competitive advantage for us in a way that we can be differentiated in the marketplace and really stand out and shine by serving a very real need of our customer population. You spend a lot of time working on improving the merchandising at the Tommy outlets, and it sounds like it's resonating. Could you give us an update on how they're performing now versus what you think they can do. Is there still a lot of runway for further productivity improvements there. And what would you need to do to execute on that. Well, I'll let <UNK> maybe give you a couple of directional, at least, indicators on some of the key stats. But I do think there's ---+ they will continue to improve, I believe. That said, I don't think we're looking for rapid growth in the outlet world. So as you know, <UNK>, for us, outlets have always been primarily a vehicle for clearing excess inventory, which is very, very different than the majority of the outlet mall that's comprised of made for outlet product. So for us, it's different. When we look at clearing excess inventory, what we want to do is sort of balance, protecting the integrity of the brand with maximizing the recovery on the excess inventory. So outlets play a part in that, but there are other channels that we can use to help accomplish some of that same purpose, including doing some limited end of season markdowns in our own store, which gives us less to shift to other channels. And then some selective use of some of the off-price third-party guys as well. And then, <UNK>, do want to give them some of the directional. Yes, yes. I think the main thing is in the gross margin. Even though outlet traffic's down, our sales are holding pretty well, maybe down a little bit on a comp basis, but our gross margins are significantly higher. We have closed 3 outlets, so we have less outlets than we did. But the ones we have are certainly preforming better on a gross margin line and on the bottom line. So we think it's ---+ we think we made some really good process. And as Tom said, I think there's more progress to be made, but we are pleased with the actions we took, and it's starting to show up in the numbers. And then the inventories would be up, turns would be up pretty significantly as well because we got a lot less inventory jammed into those outlets, which is good on multiple fronts. Yes. So with regard to third quarter. The comp was much stronger in e-commerce than in stores. And that's been the case throughout the year, and really, for ---+ really, the last 5 or 6 years and I think will continue to be the case in the future. So while in stores, we're happy to have a modest comp at this point because of what's going on with traffic. We think a modestly positive comp is really a pretty good thing. In the e-com, we think we can be up there in double digits. And for the most part, we've been achieving that. So that's good. Then the investments, the biggest thing is really around trying to maximize the visibility and usability of our inventory across the network to satisfy demand no matter where it comes from. So if somebody comes in to the Fifth Avenue store in New York, right near where you are, and ask for a shirt in a size large, a particular shirt, then we want to be able to serve that demand with any ---+ if we've got that shirt anywhere in the system, we want to be able to get it to that customer quickly and efficiently, and there's a lot that goes into that, but that's a major focus of the investment. A second major focus is just around better planning and merchandising and allocation. A lot of that, we're doing on a semi-manual basis at this point, largely through Excel, and we'd like to have that more automated. There are great tools out there, and we're in the process of putting those in place. <UNK>, am I leaving anything out. And then just having the ability to have multiple DCs and servicing our guest quicker, having DCs closer. One on the East Coast, one on the West, and we're working on that also. Spring or<UNK> book's good at Southern Tide. It's a nice year-over-year increase. That made good progress this year. They're certainly not immune from some of the issues that are going on in the marketplace in general, but they, by the end of the year, will have posted nice growth. As we go into '18, we don't want to give too much getting to guidance, but we do expect them to be ---+ have another year of growth in '18. And then I think one of the most positive developments in this year has been the ---+ starting to ramp up the licensed store business within Southern Tide. So at present, we have 7 of them. When we bought them 2 years ago, they had one. We're now up to 7. We're in a lot of discussions and have a lot of opportunities for additional licensed stores. And we think over the next couple of years, that will be a very valuable and good growth channel for them. Thank you again for your time this afternoon. We very much appreciate your interest and hope you have a very happy holiday season and a healthy and prosperous 2018.

2017_OXM

2015

AOS

AOS #No, I guess what we're saying, <UNK>, is we will be about $19 million or $20 million this year. And it was flatlined ---+ somewhat flatlined at $5 million a quarter, let's say. Last year, the first half of the year, it was $14 million. It was only about $4 million. Okay. So the $10 million versus $4 million is ---+ it affected us $6 million compared to the prior year. This year, the last half of the year, it's going to be roughly $10 million of ERP in 2015 compared to $10 million of ERP in 2014. I don't know if that clarifies for your question, but it won't have an impact on margins over the prior year. And volumes. So when you look at volumes for the water heater industry, it's normally about 52% or so in the first half of the year, 48% the last half of the year. Commercial is very similar. So volumes second half of the year will be a little bit less than the first half of the year, which has an impact. There's a lot of questions there. So promotion-wise, certainly we are spending more on promotion on air purifiers, water treatment, and also online. So that's a fact. We are spending more on those areas, as they are relatively new areas. So we are spending more promotion dollars there. As we have talked about in the past, that SG&A spend can be very volatile. Last year it was very volatile. And we ended up at about 13.8% or so for rest-of-world, which was driven by China. But there was wide differences by quarter to quarter. This year we're thinking it's going to be more leveled out. And we have talked about being about 13.5% to 13.75%, let's say, for the full year. And that drop is driven by a couple things: it's driven by our investment in air purification. It's driven by our investment in water treatment in India. And also, we started selling water treatment in Vietnam, and that's having a negative effect on those margins. So we're very comfortable with where the margins are. They're pretty much what we had talked about. And again, what differentiates us from a lot of people in China is our growth model isn't dependent on only one item. We have those three buckets, and that gives us some comfort going forward. We will continue to build the brand and invest in the brand. I don't know if that answers your question. No, we don't. Like we've always said, we are always going to ---+ there are going to be quarterly ups and downs in the marketplace in China. And we are very comfortable ---+ or anywhere ---+ and we are very comfortable with the longer-term guidance that we have given. And we manage the ups and downs as best we can, as we see them coming. Specifically in terms of the stock market, like I said, we are not concerned about the impact of it in terms of looking at the number of people it impacts, and all the reasons I gave ---+ and the fact that it's up 70% from last year, anyway, even with this recent drop. So we don't see that as having a long-term impact on our type of customer. And I think as <UNK> has alluded to, in 2008 the market dropped much more significantly than what it did. And it didn't have a significant effect on consumer spending. So we've looked at a lot of economists' work, and there's no empirical evidence that ties to stock market move to consumer spending. And again, we also say ---+. Or household formation. Or household formation. So time will tell if this is something different, but there's nothing from a historical standpoint that supports that. I wish I could answer that. We haven't done a great job of estimating the commercial market. We continue ---+ you know, we talk to our salespeople, and they are seeing it in a lot of different components. You know, gas, high-efficiency is becoming a bigger piece in the last three years. And that certainly is in one of our areas of strength. The hotel and the restaurant business is doing fairly well. So we are seeing construction there as well as retrofit work. We're also seeing for redundancy work being done. That's on kind of the commercial water heater. And then the verticals that Lochinvar works with are the educational side. And they are starting to see some potential in the healthcare side, etc. So there's been a lot of talk about commercial coming back, and it hasn't. But it has, for our businesses, come back pretty well. So we certainly cross our fingers and hope it will continue for the next several years. Not much change in the industry. It's relatively flat year-over-year. But obviously, because of the currency, it's been affected. I mean, three of the four players on manufacture in the US. So there's been impact there ---+ three of the four major players, I should say ---+ impacted there. We had some currency translation, adjustment of our top line, obviously, as the currency has devalued. But as I said, there's been price increases that have gone in there. Well, it's anecdotal replacement, and it's anecdotal surveys that we do of people that buy water heaters. And it really is kind of the Tier 1 ---+ where I alluded to earlier. It's gone from 35% to 45% and 50%. So it truly is anecdotal. But it also makes sense, right, because of the high penetration rate for some time. Water heaters don't last forever, so they are going to be replaced. Water treatment <UNK> alluded to: CMM has estimated a 35% to 40% growth rate over the next four or five years. We are comfortable with that growth rate. We have the right product in the right market with our reverse osmosis and our tankless product. We feel we have the best product on the marketplace. So we are comfortable with those types of growth rates as we look at it. It's fairly flat, I think. Yes. In terms of pricing in China as we go on ---+ first of all, for obvious reasons we can't talk about pricing. But in China in the environment is ---+ we rarely ---+ our pricing comes from new products with new features, and benefits, and different value propositions that we are able to then get higher prices in the marketplace. Being a consumer appliance, that's essentially the way we improve unit price in the marketplace in China. The environment for pricing is ---+ you know, it's a very tough environment. If you look at the CPI and PPI in China, they are actually headed downward. But in terms of tying to inventory levels, like I said, we are watching it. We are aware of it. But at this point we are comfortable with the guidance for the year. Thank you all for joining us today. We have posted a slide deck from our analyst day in May and a new video showcasing our China business on our website, aosmith.com. We welcome your questions, and please do not hesitate to contact me. Have a wonderful day. Thank you.

2015_AOS

2016

TSN

TSN #Thank you. Yes. So with the drop in the cut-out and a little bit more stabilization, if you can call it that, in cattle futures, it feels like that the retailers have been much more willing to feature beef coming up for Memorial Day forward. 50s have been pretty cheap. So ground beef is a good value. If you look at the latest 13 weeks, ground beef is up about 6% or so on a 15% decrease in price. And actually, it accelerates just a tad to about 6.5% in the four-week view on about the same kind of a price decline. So this cheaper cut-out is going to mean better beef volume, I think. Plus we've got supply around us. There's still a bit of heifer retention. You're seeing heifers about 44% or so of the slaughter. So we're still growing the herd a bit. It looks like to us that for the year ---+ now it will be obviously bigger in the back half ---+ for the year, we ought to see about 2% increase in the fed cattle supply this year, and we think that's the number for the next two years. Again, as we know, we're very well positioned where the big feed lots are, where the big high capacity feed lots are. So yes, it feels good to have the worst behind us in Beef and good supply coming to us, and that will help certainly our margins. I don't think deal flow is as robust as it's been over the last four, five years. But we have a very consistent view that we look, first of all, for strategic fit. And then we look at, in absence of that ---+ and I think one of the great things about our business, <UNK>, is that we've got a very good organic growth story. And so as we look at the landscape, no need for us to push into a deal that doesn't fit us strategically or that kind of thing. So although the landscape is a little thinner than it has been, we continue to look. We want to grow. And we want to grow organically and we want to grow inorganically. And <UNK> has got us a great balance sheet and a lot of capacity to be able to do that. In the meantime, I think buying back our stock is a great way to return cash to shareholders; and we'll stay on that and stay pretty consistent with our uses of capital, like we have been for the last three or four years. Hard to say on that last part. I wouldn't dare to ---+ I wouldn't venture to take a guess there. We are seeing higher pork prices in China, which typically lead to higher chicken prices. But chicken demand has remained a bit soft and we've not seen the price of chicken respond like it normally does in proportion to pork. I will tell you this, though, that our sell-in, our international team are focused on driving value in fresh branded chicken, and I think they're making good headway. They're seeing good momentum. Any of the market factors, like a lower chicken supply that would ultimately lead to higher wholesale markets, would only benefit our business. But in the meantime, we're certainly not standing back on our laurels. We're working hard to grow our business and to grow a great branded fresh offering. Yes. Oh, I'm sorry, yes. Great questions. I'll peel this apart. First off, we did expect the net debt to go up seasonally, as you may recall. We have cattle and hog deferrals that flip from the end of December into March that we have to pay off. Typically, $300 million to $400 million a year, so that's not unusual. We did have a lot of extra cash going into this quarter on purpose, because we intended to pay off the 2016 notes, which were $638 million. So that answers that part of the question. As far as net debt for the rest of the year, I would say that it will be generally in the area of where we are now, maybe up or down $50 million or $100 million. And to answer the question about borrowing to buy back stock, we would rather not. We think it's a better use of our resources to invest in growth first and foremost, and then use the rest to buy back stock and continue to build our debt capacity. <UNK>, certainly international would also, or is also, an M&A focus. Our strategy is to grow value-added poultry and Prepared Foods in international. And think value-added poultry and prepared foods when you think international. So those are the type of businesses that we would be looking at and focusing on, because that's, as Sally often reminds us, about 96% of the population is outside of the US and food consumption is going to grow around the world. So we want to be positioned to be able to grow for the long term and that means international, as well. So you're absolutely thinking right to think that international acquisitions would be targets, as well. It's hard to say, <UNK>. That's a no call there. We really don't see any changes. We've evolved our pricing mechanisms over the last three or four years. And I'm assuming that we'll continue to evolve them over time to make sure that we can ensure supply and work with our customers on pricing mechanisms that work for both of us. I think a big key for our business, and I know our teams are focused on this, is to make sure that we've got the very best quality out there and we have outstanding service. And our team's doing a super job at that right now. So we'll continue to work on those things as we move forward. Thanks. Good morning. <UNK>, our business is built for growth. And frankly, I would much rather have a 9%, 10%, 11% Chicken business that's growing and outgrowing the categories that we're in, than to push the margin structure and end up having to sacrifice growth to do that. So that's how we look at it. We're actively working on getting ---+ we've got a lot of fully cooked capacity available right now. We're actively working on putting a lot of par fry capacity around us. I think the team has done a super job changing the mix. We are seeing some shift from frozen into fresh at retail. And our folks are all over that. That's actually good for our business. So I think as we've looked out and run our models for the next five years, what we tried to do is get some large portion on standard deviation of the mean and that kind of thing built into the model to be able to reflect a business that can grow and maintain stable higher margins. You got it. And I think too, with adequate supply of pork, and we portend an adequate supply of pork, that means you should have favorable raw materials again next year in our Prepared Foods business, which should allow us to be able to grow that business and have a favorable margin structure. So we feel great about the way 2017's shaping up. It's early, but we feel good about it. Well, let's end by re-emphasizing, I think, an important point. As we continue growing our volume and our earnings, everything else will fall in line. Growth is and will be our primary focus. Thanks, everybody, for joining us today and I hope you have a great week.

2016_TSN

2017

TJX

TJX #Good questions. So, first of all, let me address the first part on the apparel question that you're getting at. As you know, we're pretty dominant in apparel right now with our Maxx and Marshalls businesses in the states. I would tell you that a lot of our Sierra Trading Post business is apparel that we'll be looking at. There's nothing on the plate right now in terms of another brand, in terms of apparel, but that's not to say never. We're always looking and innovating and testing and lots of ideas around here. And, I would tell you that it's not that idea has not come up. I would say we've toyed with different versions, but as you know, we're pretty methodical in that we don't want to do too many things at once. If you're us, what we're looking at right now is we have a high degree of confidence in our Australia business, which is a full-line store. Very much what we do, apparel-driven. We like the way our Maxx and Marshalls is going. We're looking at where we think we are most underpenetrated from opportunity potential is in our home arena in the US. It just screams at us. Obviously, and you're aware of all the success. So, we are bullish. We're bullish in terms of some of the apparel parts of the Sierra Trading Post expansion, and we're bullish about those stores specifically. And, getting at that, we've put a new infrastructure in place, a planning organization in place, and we've actually put some systems in place that are going to allow us to handle those apparel and non-apparel areas in a much more TJX way of shipping and selling the goods. So, I know ---+ I don't think I'm totally answering your question about where do we see apparel going, but I think you were trying to get the lay of the land, so to speak. I can't really comment specifically on our family of business like that. But, it's a good question. Very good question, <UNK>. (laughter) I guess we have taken our last call. And, we would say, again, we've been very excited to have this time with you today. Thank you all for joining us. We look forward to updating you on our first-quarter earnings call in May. Thank you.

2017_TJX

2016

SEIC

SEIC #<UNK>, my replacement loves to answer questions. So just write them down throughout the quarter. Okay. Thank you very much. Thank you, Rob. Sure, sure. Well, I guess from our perspective where we see managers trying to position themselves as glide path managers, many of those are in the DB space where they are trying to help a client with a less aggressive asset allocation as they get better funded. In the DC space, the opportunity that we see is that there is a fair amount of visibility about fiduciary responsibility in the DC space, because unlike the DB space there can be a lot more lawsuits. Some of them are real, some of them are frivolous, because they are brought by participants. So the more that the whole idea of a who-is-the-fiduciary is a question that has to be answered, I think then there is a need for service. What we see and we certainly have ---+ we have target date funds that have a glide path that are age-appropriate, but we see a bigger opportunity for us to be able to create custom target date funds for the clients and custom-wrapped simpler solutions ---+ a US equity or a global equity kind of a selection for a participant that has combined US, large and small, international emerging markets. So it's one selection, but we would still serve as a fiduciary for that. So we have the glide path covered in both of those particular areas. I wouldn't say that's the positioning. I think the positioning is more we are going to stand as a fiduciary. DB results have always done better than DC results because those plans ---+ the DB plans are better diversified and they are a longer-term type of an investor, and so they have had better results. So as a fiduciary, we would strive for that. Thank you. Thank you, <UNK>; that was terrific, as usual. <UNK>'s successor is <UNK> <UNK>. <UNK> has been with SEI for 22 years, and 20 of those years he has been in the Institutional Investors segment, where he has been an important contributor to the success over the years. Most recently he's been ---+ served as Head of Sales, and he is an able successor to <UNK>. <UNK> is with us today and ---+ <UNK>. Good afternoon, everyone. I am <UNK> <UNK>, and I have some big shoes to fill, but I look forward to expanding on the success that <UNK> has brought this segment for so many years. I also look forward to meeting you and working with you in the coming quarters and coming years. Thank you. No more questions for <UNK>. (laughter) our final segment today is Investment Managers. I'm going to turn it over to <UNK> <UNK> to discuss this segment. <UNK>. Thanks, <UNK>. Not sure how to follow that; but good afternoon, everyone. For the fourth quarter of 2015, revenues for the segment totaled $68.2 million, which was $1 million or 1.5% higher as compared to our revenue in the third quarter of 2015. This quarter-over-quarter increase in revenue was primarily due to new client fundings and implementation fees. For the full year of 2015, revenues for the segment totaled $268 million, which was $16.7 million or 6.6% higher as compared to our revenue for the year-ago period. Our quarterly profit for the segment of $22.7 million was approximately $500,000 or 2.3% lower than the third quarter of 2015. This decrease in quarter-over-quarter profit was primarily driven by an increase in sales compensation for the fourth quarter as well as an increase in our operational investment expense. Our full-year profit for the segment of $95.9 million was approximately $3.7 million or 4.1% higher than the annual profit of 2014. From a profit perspective, expense increased ahead of revenue expansion this year to support both current growth and increased investment to support future growth opportunities. Third-party asset balances at the end of the fourth quarter of 2015 were $390.3 billion, approximately $14.1 billion or 3.8% higher as compared to our asset balances at the end of the third-quarter 2015. The increase in assets was primarily due to market appreciation of $13.5 billion and new client fundings of $600 million. In turning to market activity, during the fourth quarter of 2015, despite market volatility we had a strong sales quarter. Net new business sales events totaled $12 million in annualized revenue. These events include new name wins across all our market segments, including a large alternative manager takeaway from a competitor and several private equity outsourcing mandates won in a competitive process. Additionally, we secured a full middle and back office outsourcing mandate from an international manager who previously performed these functions internally. As we enter 2016 we will look to focus on several key areas. First, we will focus on continuing our sales momentum with new name sales and growth of existing clients. Additionally, we will look to continue our success with the larger end of the market. Second, we will focus on implementing the new business that we have won and look for opportunities to grow with these clients. Third, we will look to further expand our market segments and opportunity for growth. We have seen early success in a few new markets and believe there are additional opportunities to expand our reach. Fourth, we will continue to invest in and expand upon our solutions. For example, we continue to see expanding opportunity in our global regulatory and compliance platform as well as the private equity markets. We will aggressively pursue these opportunities. In summary, while 2015 was marked by a volatile market and increased expenses ahead of revenue, we continued our growth momentum, especially with new sales. We look to carry that momentum into 2016 while continuing to build out for the future. Despite the market challenges, we see steady demand for our solutions and we remain optimistic on the opportunity for future growth. That concludes my prepared remarks, and I will now turn it over for any questions you have. You don't disappoint me, <UNK>. So, yes, I would consider with the sales we had we would expect, all things being equal, for revenue to increase. I'd say one of the things that when we look back 2015, <UNK>, that hurt us a little bit, there were a number of liquidations in especially the alternative side of the market. And the unfortunate thing with liquidations, you have funds closing or large redemptions out of funds; they tend to happen right away. So the net effect to revenue and the negative effect happens immediately. The new sales, as we've talked about and as you know, tends to take a longer time to bring in. So obviously that gave us a little bit of headwind last year. Hoping that headwind dies down this year and, with looking at the sales success, all things being equal, I would look for revenue to increase. On the margin question, what I would say is I still feel comfortable looking at the long term. As I said before, this business should be in the mid-30%s margin. However, I'm not managing it for that quarter-over-quarter. We're making investments which we believe are important for the long-term and long-term sustainable growth. And we're not going to dissuade from those investments we feel is best for the long term. I would now like <UNK> <UNK> to give us a few Company-wide statistics. <UNK>. Thank you. So, ladies and gentlemen, we feel that 2015 was a solid year created by concentrating our efforts on maintaining highly satisfied clients, and growing new business events, and investing in products critical to our future. Looking ahead, we intend to keep our focus on long-term growth and revenues and profits. I want to end this call by thanking <UNK> <UNK> for his 36 years of significant contribution to SEI's success and the success of the Institutional Investors segment. I look forward to working with <UNK> to continue the successful tradition set by <UNK>. From the bottom of our hearts, thank you, <UNK>. Good afternoon, everybody, and I hope you have a good one.

2016_SEIC

2016

STI

STI #<UNK>, if you're asking about sort of core expenses ---+. And revenues relative to what we pointed out, no, I think what we tried to do here is be very, very transparent with you, as to all of the non-core items that affected us this quarter. You saw them on ---+ the major items on the first page of the deck. As you say, I talked about a couple of the minor items that we see coming up. So I think you've got all the information that we can provide on what the core earnings power of the Company is likely to be, over the course of the next little while. And I think the one point I would reiterate is from a provision expense, with everything that we're seeing today, I do expect that to decline, as we go forward from today. We set out on a course similar to the efficiency ratio to say we want to continue to improve our return to shareholders, and we've done that, done that consistently. We've gone from the 60s to the 80s in terms of total return, and we've said, long term, that's in the zone that we want to be in. All that against a backdrop of a really good, strong capital level. So I think just on a net basis, we would continue the same story as efficiency ratio, continue to improve our return to shareholders. That return probably improvement will be at a smaller slope, but I still think we have an opportunity to increase the return. <UNK>, we had a pretty clear choice in our planned submission this year, as to how we could choose to improve dividends ---+ or payouts overall. We chose to do it in a balanced way, with some dividend increase, and some repurchase increase. But, as you point out, we did lean more toward repurchase, and that made a lot of sense to us in the context of a stock price that was only around 1.3 times tangible book. So, at that kind of level, it makes sense for us to increase the repurchase more than the dividend. And every year as we submit our plan, we'll be looking at what those numbers look like. And we also took feedback from many of our largest shareholders, as to what their preferences were. So we incorporated that within our plan, and we intend to continue to do that. <UNK>, you're right. We didn't make an adjustment for these items. They weren't really very substantial. They weren't material enough, for example, for us to go out and release an 8-K on them. But we just wanted to be very transparent with everybody on ---+ here's our core items, here's our non-core items, you can choose to make whatever calculation you want. We tried to show you everything that was core and non-core so that you got a sense of what the real underlying earnings power of SunTrust is, and how it can grow, and then you can make adjustments as you see fit. We tried to give you the adjustments we thought made sense. Thank you, <UNK>. That's a very insightful question on the bones of our portfolio, and I think you nailed it. We had a couple of charge-offs in the energy book that perhaps raised our charge-off level a little bit higher this quarter. But when you peel it back, you see energy charge-offs ---+ or you see our total charge-off level including energy, only at 39 basis points, still within what we expect to achieve for our full-year guidance, even including these couple of items. And ex-energy, as I said, we've got a charge-off level in the whole rest of the book of only 19 basis points. So the rest of our book has a credit profile that, frankly, looks terrific. And as we work our way through the energy issues in the short term, I think you'll see the power of the rest of the portfolio coming through relatively quickly. <UNK>, I think rather than continuing to say we're cresting, as it relates to the energy portfolio, we were very diligent and very focused and we've assembled a tight group focused on this portfolio, because we really wanted to come out of this quarter saying that we've crested, that we've got most of this behind us from a charge-off standpoint, as <UNK> said, I think we're clearly more than halfway through. And then that will have a positive impact on the provision going forward. So we put a lot of shoulder to the wheel on this quarter to be able to say we are crested. Thanks, <UNK>. I think the effect of the securities portfolio is two effects. One is growth in the book at lower coming-on yields than the portfolio overall. And then, second, is the effect on mortgage-backed amortization. So the combined effects of both of those things in this last quarter was around 1 basis point or so, the increase in the MBS amortization. So, it's about 1 basis point or so. As we look forward, it is already incorporated in our guidance. Think of it in the context of around 1 basis point a quarter. As a point of history, we've done it every opportunity, so that maybe ought to give you a little perspective. <UNK>, we've done it each of the last two years. One of the things that we're doing and you're seeing is our portfolio mix, and over time, what you're seeing is that we're growing our direct consumer lending portfolio at a very rapid pace, as I said, 26%. And that's helping our overall portfolio mix and portfolio yield, and that is indeed helping to mitigate the effect of NIM overall. The other thing that we're doing is we're very actively managing, as I said to <UNK> just a minute ago, our securities book and our swaps book. And as we manage that over time, that will also continue to, I think, help mitigate the effect of lower long-term rates on our book overall. And then the portions that are dilutive to NIM, we're putting a lot of intensive pressure on relationship return, and the good news is we've got the capacity and we've built the capability to be very demanding of our teams to get a lot of fee income, and you've seen that manifest itself in that fee income level. If we're putting out capital that's dilutive to NIM, we expect to get return that's accretive to non-interest income. As we said, we really try not to manage to a loan growth number, so we look at production, and then we look at paydowns, and then we look at things that we may do, to <UNK>'s point, to continue to diversify the balance sheet and get us in a positive position. Based on the things that we see now, relative to all of those pluses and minuses that come in, a 1% to 2% range is probably not out of the realm of possibility. It's probably the right zone. But, again, we don't manage to that kind of number. We really look at, are we continuing to get positive production. Are we continuing to expand what we're doing with relationships, and are they meeting all the hurdles. So for a loan to come on the book, it's got to get through a big gate, in terms of overall hurdle rates. And, Steve, to connect your questions, we have the great flexibility here at SunTrust to be able to be opportunistic. We've been able to buy portfolios, where we see the ability to connect those clients with the rest of our offerings. And we have the ability to sell portfolios that we think are non-core or not going to be accretive to value over the long term. So we've got, as you said, decent organic growth. We've got hard-working teammates. In addition to that, we've got great flexibility to be opportunistic, to find ways to add value by both buying and selling portfolios. I wouldn't say that we've got an improving credit cycle from here, <UNK>. I think we're actually in a terrific part of the cycle overall, and you can see that in our numbers ---+ 19 basis points of net charge-offs, ex-energy. Spectacularly good. We do think, over the long term, over a cycle that, with the credit profile that we've got, we should be expecting net charge-offs of between 40 and 70. That's what's built into our strategic plans and that's what we've talked about, is what you should expect over the medium term. So we're in a very, very good part of the cycle. But, to your point ---+ and I think this is where you're completely correct ---+ this part has lasted a long time. We've been well under our 40-basis-point expectation for many quarters, and we continue to stay there. And when I take a look at the credit profile of the new loans that are coming on our books, across all three segments, those credit profiles continue to be very, very strong. Consumer FICOs ---+ consumer lending FICOs continue to come on at well north of 750, in many cases we're talking about 770, 780. And, as you know, we're not a subprime lender. The credit profile of what we're putting on continues to be very strong. I like what we're seeing in Wholesale Banking and what's coming on there. So it is lasting longer than we had perhaps thought it would a couple of years ago. That's the way I was going to answer. I think it's really no change in intensity. It's just change in time. And, every quarter, it continues to be good. Everyone will talk about, that's a quarter more in this cycle. I'd say it's not just a market-specific comment, but it certainly is a market- and product-specific comment. So, absolutely, there are places where we have less intensity related to a product that might be overbuilt in a certain market, and we're seeing pockets of that. As I said earlier, our production in CRE will go down. Now, the things that we are doing and the things that we see are positive, but it is not an overall health metric. It is that proverbial heat map. <UNK>, you know as well, the way that we're organized now allows us to really manage that heat map so much better than the way we were organized before. So we can really pull back from one market and one product and emphasize another product in another market relative to the health of those clients, the support of those clients, and what might be going on in any particular area. It's interesting, because a lot of the parts of Florida continue to be really good. We've not been a big player in the condo market in Miami all the way through, and we continue not to be a big player. Multi-family there, we're keeping an eye on. That would be a good example. The other markets in Florida, from an industrial standpoint, are much better. Job creation in Florida ---+ remember, Florida's one of the top job-creating states in the country. The port business in Florida is good. We see a lot of the East Coast ---+ the West-Coast-to-East-Coast migration happening, and the building that goes along with all the increased port activity in Florida. So there are a couple of pockets that would be a good example. And then maybe talk about housing in general. We keep a close eye on housing in general overall in Florida, as you might imagine. We have probably the most heightened sensitivity to that of anybody. We continue to be with really good developers. We continue to see pockets of opportunity. There's not a lot of crazy stuff going on. There's not a lot of land accumulation. There's not a lot of two guys and a truck. All the things that we get worried about. But our relative exposure is well managed within that geography. And, <UNK>, when you step back and look at our CRE book overall, it's very well diversified by geography and asset class. As you know, we've gotten zero delinquencies in our CRE book today, and a criticized loan exposure level of only about 2%. <UNK>, I think our view is indeed similar to the one you just espoused. At 9.7%, that is more capital than we need to fundamentally run the operations of this Company, and it is more capital than we need when you look at the very strong risk profile across all of our books. What you have seen with us is that we have been looking for ways, and finding ways, to allow that ratio to drift down a little bit. The increase in dividend, the increase in buyback, what you should see with us over time is that 9.7% should continue to drift down a little bit, a tenth here, a tenth there, and come down to something that, over time ---+ I wouldn't expect a one-time massive repayment, but that over time we'd be able to bring it to something that is value-added for all of our shareholders, rather than retaining as much excess as we have today. It has been until now, and as we look at what next year brings to CCAR, once we get some clarity on what the rules are going to look like for banks in our position, we'll evaluate whether that continues to be so. I think there are a couple of reasons. One is, I think, as an industry we've been more demanding on structure. So there's just a lot more equity in this part of the cycle. There are bigger players in this part of the cycle. If I think particularly about the single-family part, it's dominated now by bigger players with a lot more capital and a lot more staying power. There's been a lot of equity available. They're accepting returns that are perhaps lower, so that allows them to have more equity in the deals. I just think there's been a ---+ we tend to have short memories, and I think maybe in the case of commercial real estate, our memory's a little longer this cycle than it has been in the past. But it's something, in fairness, for all of us to be watching.

2016_STI

2017

PATK

PATK #Thanks. Steve, this is <UNK>. It would be our goal to be able to continue to execute, I think, again, as we've talked about, related to positioning ourselves with the capital structure to be able to do that. We feel very good about timing of what we were able to put in place related to the equity offering, related to our credit facility. So our goal would be able ---+ to be able to stay disciplined, and we fully expect to be able to do that in the event of continued uptick in the market, which we're very excited about and optimistic about as well. If we do see a hiccup, we would expect to be able to continue to execute in that time frame as well. So I would categorize it as staying disciplined to our approach, both in an up and down market. Yes, Steve. This is Josh. So the anniversary of the vesting for our share-based compensation usually occurs in Q1, which is why we're seeing this benefit in Q1 consistent with the restatement last year. So on a go-forward basis, as those share-based compensations vest, we would expect to see some type of either a benefit or deficiency in Q1. As far as our expected tax rate, still consistent, around 36.5%, absent any of the share-based compensation benefit. Steve, this is <UNK>. From our perspective, I would say that we're going to stay consistent to what we've been able to do in the past, stay disciplined to our approach, whether it be the smaller acquisitions or the larger acquisitions. We really look for tremendous brand value and that brand value proposition. And so the opportunities to be able to bring on new product opportunities and capitalize on our existing platform with additive product space and management talent is what we really look for. And so I would say that we're going to continue to look at a plethora of acquisition candidates and size, and we're going to continue to capitalize on that entrepreneurial spirit that's really allowed our brand portfolio to gain a lot of traction and be very successful. So we're going to continue to do what we've done in the past would be our expectation. Steve, this is <UNK>. Steve, I just was going to say, I think, to add on what <UNK> was saying, I think the smaller acquisitions, as we analyze them, we look for those things and opportunities to synergize those. A lot of times, smaller acquisitions are bolt-ons to existing product lines that we have where we can take advantage of things behind the scenes from an operational standpoint without impacting the customer, which obviously generates value to the entire organization. So it's really one of those things that, as <UNK> put it, it's very strategic and thought out and we intend to stay disciplined to the way we've operated in the past. Thank you.

2017_PATK

2016

HON

HON #The ATR side has actually performed fine, and we're going to continue to see things like A350 pick up, so that's going to be a benefit to us. The biz jet side and commercial helos should I would suspect are going to continue to be a market drag for us next year. When we put all that together, aerospace is still going to be an important performer for us overall. You saw a fair amount of the restructuring also occur there, and we think it's going to be a good performer for us in the long term. But 2017 is still going to be little bit tougher overall, I think when you put all that together. Are you talking about growth in the business overall. For 2017 we want to go through the AOP planning to make sure that we understand all the pieces, but at this point I think we're probably going to plan this more conservatively than less. So I'd say overall probably lower sales next year than this year will be the way that we'll plan for it. We haven't ---+ we really haven't gone through all our planning process yet. Yes, in rough order of magnitude we're probably a $400 million or so business currently, and that continues to grow nicely as we've said. I mean it's more right now mobile air conditioning, which is a brand new segment for us, but as we continue to progress through it, we get into buildings and blowing agents and other things. So it's ---+ it becomes a broader application for us. As far as the new regulation, it remains to be seen how that agreement will impact us, but our forecasts are not dependent upon anything that happened this past week. We do see it as potential opportunity, but we need to sort through and fully understand those impacts close to 2020. I would say though, <UNK>, it's clearly a good development, and world's focus on low global warming potential products makes a difference. If you take a look at the HFCs that our product replaces, HFCs are up over 1,300 times worse than a single-molecule CO2. If you take a look at HFOs, our invention, it's actually 0.8 molecules of CO2, so like 1,500 times better than what you would see from HFCs. So it's a significant new product. There's a recognition that HFCs do have a big impact, negative impact on global warming potential, and Solstice, our HFO is just a tremendous solution for it. And the faster it gets adapted, the more quickly governments will actually be working to stem the tide of global warming. So we think it's going to be quite important. So <UNK> let me clarify that. The incentives become due and are recorded and recognized in our financials when the milestones that govern that incentive are reached. The milestones are generally development or performance-related milestones. They vary by customer. So for example, if you hit the first test flight or entry into service or other types of engineering milestones, those could trigger an incentive being owed and due and it's recognized in our financials. When you look at 2016, our P&L has been significantly burdened by, to the tune of $0.25 as I said earlier of EPS, by incremental OEM incentives. Next year ---+ this is the peak year and it starts to tail off next year. We get a modest tailwind, and then it really accelerates into 2018 and 2019 in terms of the tail wind, yes. It's not a direct connection because, I mean the incentives for us are largely based on the development process and bringing the aircraft to production. And so while you might incrementally get to faster production, you still have to have orders, you still have to have selling, and those cycle times generally are unaffected by ---+ or incentives are generally unaffected by those activities. <UNK>, I should add these are good investments for us to be making. We expense everything as incurred. We don't put it on the balance sheet, so we take our hits as they're occurring, unlike others who put it on the balance sheet and you see it over time. So for us while it's painful in the short term, it sure as heck helps where you're going in the long term. And these were decisions that we made several years ago to make sure that we were on the right platforms with the right kinds of products and services going forward. So this is pretty smart money. It's painful in the short term, but it's smart money and positions us extremely well for the future. Well, this is one that's always kind of interesting when you look at aftermarket versus flight hours, because while flight hours develop pretty consistently over time and they tend to go up 3% or 4% a year; even in a bad time, they'll go down for a single year and then pop back up again. So that trend is always relatively smooth. The aftermarket stream associated with it, though, bounces around in sometimes crazy directions. If you recall the recession, for example, where flight hours were down 3% or 4%, aftermarket was down something like 20% or 30% in that same year. So the long-term trend is generally consistent with what those flight hours are. In the short term it can bounce around quite a bit, so being able to explain the difference between say 3% and 1% is easily within the realm of typical variability. The other thing I'd add to that, <UNK>, is that you've got a combination of both air transport and business jets in that 1%. We talked a little bit about the slowdown on the business jet RNO activity. I was going through the slides, and that has contributed to this. Yes, it will. Wow, that's a level of specificity, <UNK>, I'd have to say we'll have to get back to you on that one. Yes, it's one I always kind of wonder so what date are they looking at when it comes to ---+ I assume this is the market share question, <UNK>. Yes. Because if you look at the dater, it actually looks very good for us. And to your point, we are selective on the platforms that we pick. I've always been shocked at the investor reception when one of our competitors says that they've won 32 of the last 25 competitions, and when you say, geez, now they're winning over 100% of all the competitions out there, how is that possible. And I think they're getting a little carried away with what do they count and what do they not count. If you take a look at our avionics performance, it's quite good and there's future stuff that we'll end up talking about at some point. If you take a look at the concessions that we're paying right now, for example, that you would look at that and say, oh, that yielded a bunch of good platforms also. When you look at the amount of R&D that we spend in aerospace it's kind of ---+ I don't know what the heck they're pointing to when they say it. It's one thing to be able to say some of this stuff. It's a little different when you actually have to back it up. I just have a tough time seeing it. I don't know where they're getting it from. Well, it's always tough to predict, as we've said before, and we're going to continue to do both the divestitures and acquisitions in a way that causes us to improve the overall growth profile of the company. The problem of course is you can't predict them. You can't say it's $2 billion a year, $5 billion a year. It's going to be 0 one year, $6 billion another. You just don't know. So we have to take our opportunities as they arise, and we'll continue to do that. We do have a good balance sheet, like having that. We think that gives us the opportunity to be smart when it comes time to doing a deal or when it comes time to having the capability to repurchase, and we'll continue to be opportunistic on both. Are you saying from an acquisition perspective, <UNK>. Yes, there's ---+ well the nice thing about having so many opportunities and so many places for us to go, all the stuff you talked about is interesting, whether it's technology, software, stuff that does a better job of connecting the digital physical world. So there's a lot of places for us to run here. It's really a question of what's available and is the price right. We're still always going to be very conscience that price makes a difference. If you pay for a strategy because the strategy is right, what ends up happening is the seller is the one who made all the money on the strategy, not you. We're going to continue to be thoughtful about how do we do that. Thanks. Thanks <UNK>. Wow, I was prepared, <UNK>. I was prepared for that and for someday for them to actually pronounce your last name correctly. Yes, well, you can start <UNK>, with aerospace. You know that over the course of the year because of the volumes as well as driving HOS, we've deployed a fair amount of restructuring to that business, and a lot of that is pretty quick turnaround kinds of paybacks. When we did the desegregation of ACS we also went through a significant management spans and layers exercise, so what we try to do is limit and reduce the number of layers that we have from the top boss down to the lowest level person in the organization. We've also tried to increase the span of control for each of our managers. That also took up a bunch of the capacity that we spent in the third quarter. And I'd say thirdly, in our supply chain we continue to have lots of opportunities, whether it's continued integration of acquisitions that we've done or just addressing legacy sites. We've found opportunities and still have more ahead of us to invest in restructuring and attractive payback projects. So it's a combination of the reorganization that we've done as well as the continuing ---+ continual addressing of our ISC, our supply chain. And then the third thing I'd say is the acquisitions that we've done to achieve the cost synergies that we talk about, you do have to apply restructuring. Again, those do deliver anywhere between 6% and 8% percent of cost synergies on the acquisition. A bunch of that comes from just leveraging our sourcing agreements. But some of it is from restructuring as well. And so those are the three principal areas, and as a result you're seeing that 2017 tailwind from the pool of funded projects that we have, as I said. I'm sorry, <UNK>, I'm not sure I followed that one. Hard examples of what exactly. Got it. I understand and yes you're correct, and of course we expense all our R&D as we go along. We don't put any of that on the balance sheet either. So we take the hits for the R&D, which can be substantial if you're trying to develop software, but once you do and you start selling the software packages and the upgrades, so whether it's weather radar or a runway incursion or excursion, possibilities, the JetWave. As you start to get into that it is substantial. The margin rates are significantly better. I wouldn't put any numbers on it at this point, but your concept is absolutely correct. The ---+ that is definitely the ---+ let's say the direction of the Company and it's why we focused as much as we do on software, and I think puts us in position for a very good future for the entire Company. We've got a bigger advantage here than anybody else with almost half of our engineers focused on software today. It puts us in a much better position. Thanks, <UNK>. Hey Jeff. Yes, the way I would think about it, Jeff, is you probably noticed that over a long period of time we do a lot of restructuring. If we've got some kind of unusual gain, we usually use it to restructure. We take a lot through operations generally every quarter. It's one of those things where we want to constantly be investing. We're not going to run out of ideas. I wouldn't want to go into too much detail until we've had a chance to go through all our AOP planning, but I would be surprised if next year we didn't also have additional restructuring ideas as we went along and that we'll find a way to fund them. Well, in 2016 of course we had a big boost as we figured out how to do the additional restructuring in the third quarter. I wouldn't anticipate that we'd do something that big again next year, but you never know. I don't want to ---+ as you know, I never say never on any of this stuff, but the whole ideas of how do you just constantly have a good pipeline of ideas and find a way to fund the really good ones so that you do the seed planting for the future, that's something we're going to continue doing. Yes, the ---+ I guess there's a couple of things that we end up looking at. I won't put a specific number on the return because that's ---+ I just don't think that's a good thing to have public out there. But this has to be a high return project. The same sort of thing that we look at for any internal investment because that's what it is. And that's why we pay so much attention to what platform is it and what do we really think is going to happen. So we don't just take an external look or the customers look at what do they think it's going to be, but we really go through this ourselves to say what do we really think is possible here, and how do we make sure that this is going to generate a good return for the Company. Our guys do a pretty good job of this so that we pick the right platforms. And when you see the concessions that we are paying, it's been so that we could do that. So these are going to be high return very good IRR projects and platforms that we're on. We're pretty confident of that based on what we've done and what we see. Jeff, the way I think of it is we have a very disciplined process when it comes to considering whether we compete for a new platform that's a potential opportunity for us. It's as disciplined as an M&A process, so we consider all of the investments. These incentives are one aspect of that. I mean there's a lot of engineering time and project management time that also goes into the outflows or the investments that you're making. And then of course you consider all the future revenues and the models and so forth. It's as disciplined as M&A. And as <UNK> said, we have internal returns that we look to as the hurdles. We'll go ahead with the ones that do meet those attractive rates. And for what it's worth, Jeff, we're very conscious of the time value of money. Thanks, Jeff. Hey, <UNK>. I would say we've done our ---+ we think we've provided a lot of color commentary on 2017 at this point, more than we normally ever would. And I would just say stay tuned for the December outlook call. We'll go through a lot more detail then with Darius and <UNK> to be able to explain what will we see and why. And we're going to be very conscious of having gotten burned on the macro environment this year, and as conservative as I thought we were being in the beginning we weren't conservative enough. So we're going to want to make sure that as we pull together a plan for 2017 that it's one that never ends up with the kind of snail surprise that we ended up taking this year. Yes, well, first if you look at the ---+ I mean the deals that we've integrated this year, most of them were closed in the fourth quarter or the first quarter. And yes, you had a lot of startup costs in particularly the first three quarters of this year. Intelligrated, which we closed in late August, will add to those one-time startups. But net/net when you consider amortization and inventory accounting and the other things, the year-over-year impact will be favorable on those deals. But the more important thing is that the operations and the cost synergies that we get typically start to ramp in the second half of the first year into the second year. And that's where you start to see the margin rate improvement. So we'll go through the in details in December, but this should be a nice contributor to what we had for 2017. Yes, on the first one on salespeople, a lot of those have been deployed to what we refer to as high growth regions. And the reason for highlighting it, of course, is that when you hire salespeople there's training and familiarization that has to go on. So they're not immediately productive. It's the sort of thing that shows up in the future. I won't ---+ difficult to quantify at this point what that's worth to us say next year and the year after. But it's another investment that ---+ where we take the expense up front, because of course you've got to pay them while the sales numbers they deliver aren't quite enough to pay for themselves in those first years. So this is a good thing for us to be doing, a good way for us to expand our high growth region presence, but it's the sort of thing that's another investment for the future for us. On the restructuring side, I don't ---+ I know we've shared some data, not restructuring, the ---+ Purchase accounting, yes. <UNK>, I don't know that I want to go too much more than what we've already disclosed here. Yes, I think we keep it at an overall contribution. For 2016 M&A is ---+ we guided at $0.05 to $0.15 of overall contribution to EPS. And that is an all in number that takes into account all of those one-time costs as well as the pure operations. In 2017 you can expect that to be a bigger number as a result of a lot of those costs going away. You can kind of calibrate it when we provide that in December. All right. Thanks, Chris. Yes, thank you. On October 7 we went out of our way to be transparent. With our focus on transparency, I lost sight of how important it was to also convey our confidence in the future. Hopefully our confidence in that future came across today. We look forward to sharing more with you in our December outlook call. Thank you.

2016_HON

2015

PRAA

PRAA #So are you talking about income from operations Q2 2014 to Q2 2015. Well first, Dave, I just glanced back through really quickly. There have been quarters, I'm just looking at Q1 2012 versus Q2 2012, that was one where we stepped backwards quite a bit more. It was like 95.7% versus 92.3%, if my records here in front of me are correct. I talked a little bit about lifting this quarter. The ratio analysis seems to hold pretty well. Operating margins are, from a total operating expenses, to operating expenses, to cash collections are a little bit higher in Q2, which you might expect. I talked a little bit about some of the expenses, but there were some in Q1 as well. There's a few other expenses rummaging around in there that I didn't even point out. There's a $700,000 item that has to do with some charges we took over in Bromley, but I don't consider them restructuring. So there's a few other things in there. But I think the premise we have had quarters Q1 to Q2 where it stepped backwards, but that's about as far as I can go with that. Well the trend we tried to describe a couple times is really that we're seeing more people pay in our call centers. And one of the outcomes of that is fewer people get sent back into legal. So from a curve perspective, we'll have to make the curve higher sooner and get down faster later. Because there won't be the legal collection kick in the out years, but that's good news from us right. We like seeing cash come in faster, that improves IRR, so everyone is happy when that happens. No bad news. I'm sorry, <UNK>, it's in other income. No. That's correct. It's because of the way we had to structure that transaction and the securitization. So that particular investment, which was reasonably good size, doesn't show up in that traditional manner. It was $3 million in revenue this quarter. I don't have it off the top of my head what it was last quarter, probably similar, but I don't have it. <UNK>, do you want to give a little bit of color. No, we continued to look at the post market, we think it's an interesting marketplace for us. It's competitive, as all markets are now. But we see a regular stream of sales to the market. So we're building up our local organization there. And we opened up our Warsaw office, and tracking the market much closer. No, there's no further clarification that we're aware of at this point. Absolutely. Thank you, <UNK>. Thank you all for joining us for the Q2 2015 PRA Group earnings call. We look forward to speaking with you all again next quarter.

2015_PRAA

2017

EXR

EXR #So, if you look at our ---+ when we talk about premium on move outs we don't talk about the rent roll down. What we are talking about is our average in place rents compared to our average street rate. And I would tell you that on average for the year it is mid- to high-single-digits depending on the time of the year. So in other words when we are raising rates in the summer that roll down or that negative mark is lower. But everybody does not move out in equal ---+ what I am saying is you have more churn ---+ our medium length of stay is six to seven months, but our average length of stay is 14 months. So you have a group of units that are constantly churning that have a very short length of stay. So, many of those customers never received a rate increase or received one rate increase. And some of those moved in below street rates. So when they move out it is actually very little impact, and also you have a large number of those that churn all the time. So our negative mark-to-market is different than our in place rents compared to our street rates. I am not sure I understand the question, <UNK>. I would tell you ---+ our average leases are fairly close to market and it is property by property. No, go ahead. Yes, that is a good question. So the earliest CofOs we delivered we stopped within a year most of them ---+ just way ahead of historical norms and underwriting. The more recent deals are leasing up between one and two years on average. So certainly the pace of lease up has slowed down, but we have underwritten all of these deals at 36 to 42 months. So they are not leasing up as fast as they were but they are still leasing up generally ahead of projections. So we actually have not put that out in the public. It is something we will consider looking at, but we put a management fee into our properties that is what we consider a cost to manage when we underwrite. Sure. The five boroughs as opposed to our New York MSA, which includes northern New Jersey and Long Island, had revenue growth in the fourth quarter under 2%. And for the year under 5%, about 4.7%.

2017_EXR

2018

CLDT

CLDT #Thanks, <UNK>. Good morning, everyone. Thanks for being with us today. Earlier today, we reported our results for the first quarter and, by most key metrics, finished at the upper end or higher than the upper end of our guidance range. RevPAR declined 2.4% compared to our guidance of minus 2% to minus 3.5%. Adjusted EBITDA of $26.4 million finished slightly above the upper end of that guidance range due to better-than-expected hotel EBITDA margins of 36.3% compared to our guidance range of 35.4% to 36%. So adjusted FFO per diluted share was $0.36 compared to guidance of $0.33 to $0.35. We faced sub-RevPAR comps to the prior year, and of course, we had talked about that since last year, and particularly when we put our guidance out for this year. And we benefited last year from the Super Bowl in Houston where we have the 4 hotels and the inauguration in D. C. last year where we have 3 hotels. Our D. hotels were also hit by the temporary government shutdown earlier this year. Additionally, we had some large corporate business in Silicon Valley that simply shifted from March to April this year. Looking at our more significant markets in the quarter, RevPAR at our 4 Silicon Valley Residence Inns was down 5% to $177 due to that shift in business. Demand remained strong, though, in Silicon Valley, outpacing new supply by 100 basis points. We got the bounce-back in April, I'm happy to report, where RevPAR at our 4 Silicon Valley hotels rose 10%. San Diego represents our second largest market where RevPAR slipped 3.1%, but that was impacted by displacement due to the renovation of our Residence Inn in Mission Valley, in addition to a new Homewood Suites that opened within a couple of blocks of that hotel. Downtown San Diego performance has been really good, and RevPAR at our Downtown San Diego Gaslamp hotel has been strong and is projected to grow approximately 10% this year as the impact of new supply over the last few years is absorbed, combined with a strong convention and events calendar for this year. Another significant market for us is LA, which posted strong first quarter RevPAR growth of 4.3%. It's also encouraging that our Residence Inn in Anaheim, which had really spent the last 1.5 years going down, is showing positive growth after absorbing a tremendous amount of new supply and stands to perform much better when the Gen 1 Residence Inn within that market leaves the system in the third quarter of this year. Our Florida hotels continue to outperform, with RevPAR gains of almost 7%. Some of the gains relate to some leftover FEMA business in the hotels, but most of the gains are attributable to much improved Florida demand, benefiting from disruption in the Caribbean and Key West and a little bit of an easier comp, of course, as others have noted, with Zika last year. We're seeing some improving market conditions across various locations. Within our portfolios, it's interesting to look and see that 1/3 of our portfolio saw RevPAR grow more than 5%. Some of the hotels are in markets that have absorbed most of the competitive new supply, such as our markets in Westchester County and Brentwood, Tennessee. We have markets where demand growth is strong, such as Farmington, Connecticut, Exeter, New Hampshire and Marina del Rey. The price of oil has risen approximately 35% in the past 6 months, and we're seeing our oil markets come back to life, such as our Washington, PA hotel, where RevPAR was up over 40%. We're also seeing some increase in oil-related business come back into our Houston hotels and some other markets within our JV hotels. Year-to-date, lodging supply growth was 2%, industry-wide, which doesn't sound high, but most all new supply has been concentrated in extended-stay and limited-service hotels, with which we directly compete. Year-to-date, new supply in the upscale segment rose 5.6%, and this was offset by demand, which rose 6.1% in the quarter. New supply has certainly dragged on our performance in markets such as Route 128 in Boston, Dallas, including Addison, and Denver, as well as San Mateo, California. We believe a rise in construction costs though and title lending requirements should mitigate some of the planned new hotels as we move forward. So our second quarter has gotten off to a good start, with April RevPAR rising approximately 3%. Strategically, we are going to continue to diligently execute on all 4 prongs of our strategy. Our balance sheet is in great shape, and we are at our lowest leverage level since 2010. We are well positioned to deliver further on our strategic approach and accrete value. By the end of the quarter, we expect to close on the acquisition of the beautiful new Residence Inn, Charleston Summerville, in an area that is bustling with development across all property types. With that, I'd like to turn it over to <UNK>. Thanks, Jeff. Good morning. Our RevPAR decline of 2.4% in the quarter was driven equally by a decline in ADR and occupancy. Our reported first quarter gross operating profit margins were 44.4%, and our hotel EBITDA margins were 36.3%, slightly above the upper end of our guidance range of 36%, and the driver behind our FFO per share outperformance. Our first quarter same-store operating margins were down 260 basis points year-over-year. Payroll and benefits represent approximately 35% of our total operating expenses and approximately 20% of our revenue. For the quarter, on a per-occupied-room basis, payroll and benefits were up approximately 7% and impacted our margins by 170 basis points. Industry-wide, especially in urban areas, margins are under pressure due to rising wages and benefits caused by low unemployment. We can either raise wages to where we are competitive or lose well-trained employees to other hotels or other industries, such as fast food and warehousing. Unfortunately, in these same markets, temporary casual labor rates can be up to 50% more than market wage, so we can't afford to go that route. As we move forward as owners and not only as operators, we need to continue to find ways to reduce labor costs by maximizing the efficiency of our staffing model. The only other item that had a major impact on our margins adversely was weather-related increases in utility costs, snow removal and maintenance, which impacted margins by 60 basis points in the quarter. These are primarily onetime weather-driven variances. Guest acquisition costs were up 2.5% year-over-year due to increased ---+ basically in guest reward costs. These are actually offset by lower GA commissions that as a percentage of revenue were actually down approximately 10 basis points in the quarter, so a little bit of a pop to our margins. Hotel EBITDA margins were off 360 basis points in the quarter as we benefited from approximately $0.5 million of multiyear or prior year profit refunds that we received in the 2017 first quarter. Along with Island Hospitality, we are pushing harder than ever to maximize our revenue management strategies and controlling costs as much as possible. We are aggressively implementing additional revenue opportunities and working with our franchisors to implement new measures that will help owners regain some of the lost margins. For example, at our 36 comparable hotels, we increased other revenue by almost 18% in the quarter, driven by parking revenue, which was up 20% in the quarter, and improved our revenue $200,000. The cancellation fee policy that was adopted by basically Marriott and Hilton with the adopted 48-hour policy, actually, we collected fees in the quarter of about $50,000. Additionally, we're rolling out amenity packages in certain room types, which are also adding to our top and bottom lines. On the expense side of our margins, we're already very lean from a staffing perspective, but we continue to look for ways to further improve efficiency and reducing minutes. Can we have ---+ are we able to hire part-time labor in certain markets and eliminate the equivalent full-time position which comes with incremental costs or benefits. We're challenging the brands to address the operating model of select-service and extended-stay hotels and limited-service hotels without sacrificing today's traveler experience. We're reducing amenities such as newspapers, which saved us approximately $15,000 in the quarter. We're beta testing tweaks at hospitality at our select hotels, trimming offerings and focusing our guest service contact. We were able to reduce those costs by approximately $10,000 in the quarter. Obviously, these savings are just on a limited-trial basis, but initially, they are encouraging. We have to be cognizant of our guest expectations and their experience ---+ experience within the hotel, so we may decide not to implement some of these initiatives or at least alter those initiatives at certain hotels. On the CapEx front, during the quarter, we converted some empty space into 2 additional guest rooms at our Marina del Rey Hilton Garden Inn, creating approximately $800,000 of value. We continue to look at our existing assets and find ways to enhance value, whether that's the continued conversion of alternative space into guest rooms or enhancing our guest experience by adding, for example, small bars, while delivering an attractive return. I'm going to go ahead and turn it over to Jerry. Thanks, <UNK>. Good morning, everyone. For the quarter, we reported net income of $2.9 million or $0.06 per diluted share compared to net income of $4.6 million or $0.12 per diluted share in Q1 2017. The primary differences between net income and FFO relate to noncash costs, such as depreciation, which was $12 million in the quarter, onetime gains or losses, and our share of similar items within the joint ventures, which were approximately $1.7 million in the quarter. Adjusted FFO for the quarter was $16.5 million compared to $18.1 million in Q1 2017, a decrease of 8.8%. Adjusted FFO per share was $0.36 compared to $0.47 per share generated in Q1 2017. Adjusted EBITDA for the company declined 6.1% to $26.4 million compared to $28.1 million in Q1 2017. In the quarter, our 2 joint ventures contributed approximately $3.1 million of adjusted EBITDA and $900,000 of adjusted FFO. Chatham received $1 million of distributions from the JVs in Q1. First quarter RevPAR was up 0.9% in the Inland portfolio and up 1.1% in the Innkeepers portfolio. Our balance sheet remains in excellent condition. Our net debt was $528 million at the end of the quarter, and our leverage ratio was 33.6%. In Q1, we refinanced our $250 million unsecured revolving credit facility, which extended the maturity from November 2020 to March 2023 and lowered our borrowing costs by up to 15 basis points depending on our leverage level. Transitioning to our guidance for Q2 and full year 2018, I'd like to note that it takes into account the anticipated renovations of the Residence Inn Mountain View and Residence Inn Tysons Corner in Q2, the Homewood Suites Dallas in Q3 and the Residence Inn Sunnyvale I and Homewood Suites Farmington in Q4. Our guidance also assumes that we closed the $21 million acquisition of the Residence Inn Summerville South Carolina on July 1 and financed the purchase using our credit facility. We expect Q2 RevPAR growth to be flat to up 1.5% and full year 2018 RevPAR to be down 1.5% to up 0.5%. Our RevPAR guidance assumes the current trends of solid GDP growth, combined with above average new supply in the upscale segment will continue throughout the rest of the year. As a reminder, our full year RevPAR forecast has been impacted by difficult comps for our 4 Houston hotels, which benefited from the Super Bowl in Q1 2017 and increased demand after Hurricane Harvey in Q4 2017, and our 3 hotels in the Washington, D. C. area, which benefited from the inauguration in Q1 2017. Our full year forecast for corporate cash G&A is $9.8 million. On a full year basis, the 2 joint ventures are expected to contribute $15.8 million to $16.4 million of EBITDA and $6.2 million to $6.8 million of FFO. I think at this point, operator, that concludes our remarks, and we'll open it up for questions. <UNK>, we have seen some of that. If you look kind of at our special corporate business, it was up kind of in the 3% to 4% range across our portfolio. So we did see a little bit of that, which is encouraging. I would say that the pipeline for us right now is pretty thin. But we have our usual, I'd say, 1 or 2 suspects that are direct conversations with owners we're working on. As you could probably see from any purported transactions or otherwise, it's been pretty quiet this year so far. I think a lot of owners are probably either pricing back up again compared to last year simply because ---+ or holding on, because (technical difficulty) can still refinance at pretty attractive rates, particularly with the prospect of interest rates going up. So that's our competition more than anything today, is simply the refi market. Oh, we never take that off the table. Obviously, that's something that we're always going to measure. The board will look at that and look at our implied cap rate and multiple. But I think that we've been pretty successful in acquiring hotels that not only have a decent going in cap rate, but I think have shown good growth going forward to a cap rate range that, still even with today's stock price at this level anyway, is north of a 7.5 to 8 cap kind of valuation. That was a change in ---+ a change in depreciation. Well, we appreciate the time everybody spent this morning, and we're looking forward to a little bit ---+ continued a little bit better environment as we move through the year. We will see folks at NAREIT in New York, we hope. So please let us know if you want to have a meeting, and I look forward to that opportunity. Thank you all.

2018_CLDT

2016

DO

DO #<UNK>, thanks for the question. Look, at the end of the day, this was our idea and we reached out to GE because they were already familiar with guaranteeing availability in other industrial segments. And importantly, we had their subsea stacks, of course, on our new drillships. If they were to have correct skin in the game from a financial perspective, we needed for them to have the total accountability that comes with owning the assets too. So we've collected $210 million from the proceeds of the sale, but I'm not sure the OEMs will be willing to repurchase subsea stacks carte blanche. So as a result, we have significant advantages that come with first-mover advantage and this is actually a huge vote of confidence regarding Diamond Offshore as a leading offshore driller, one that come from a corporation of the scale and sophistication of GE. This is ---+ this was a difficult construct to put in the industry. There was no precedent. It's a combination of eight months of negotiation. We're there now and our clients are applauding. So we aim to bring uptime and availability performance improvements to the subsea stack similar to what was seen, for example, in other industries such as aviation and power generation with rotating equipment. Let me not underestimate the difficulty of putting this in place. What I wanted to do was I wanted to have the original equipment manufacturer to have total skin in the game. So that involved selling the BOPs back to the OEM, back to GE in this case. For us, we did it on our new drill ships because clearly that was, as you rightly mentioned, perhaps the best test case. I see this rolling out across the industry. The reliability of subsea stacks needs to improve if we're to drive the efficiency gains to make this more economic. So to answer your question, yes, I think it will expand across the industry, but clearly we've got first-mover advantage in this particular case. We got high marks from Exxon on the work the Endeavor did in the Black Sea, but really based on markets and just geology of what they found, that work is not extended in the Black Sea with Exxon. So she's in Romania now where the derrick will be removed so we can take her back to the Bosphorus on a heavy lift. We definitely see her as part of our fleet going forward, but there's no immediate follow-on work that we are announcing today. Yes, we've got several months worth of work I think before we take her down to a cold-stacking status, so we've got to ---+ there's some work still ahead before we get there, but we'll minimize her costs and then see where the market takes us. Not at all. I see it actually quite different to that. The near-term impact of this arrangement is not material to earnings. This is a part of a long-term strategy that will address one of the Achilles heels of offshore drilling today. The subsea downtime is huge in the industry and if you think of each day that we are down from drilling in order to do a stack pool, that's a loss of $1 million per ---+ for our clients on a daily basis. A stack pool can be up to 20 days. So in terms of drilling a well, you lose a subsea stack for whatever reliability issue. Then that adds sometimes up to $20 million to the cost of the well. The reliability just isn't there and buy incentivizing the original equipment manufacturer from a financial basis, and as I said in my prepared remarks, when ---+ the current status today, they do a direct sale and then they hand us a spare parts price list. They are not really incentivized like the driller or the operating company to minimize downtime. I'd like to think that they do have the design for reliability ethos, but by bringing them to the table so that they have financial skin in the game, then I can be certain that they are designing their equipment for maximum reliability and if you ---+ GE know this construct. They do it for aviation turbines. The GE90 engine, as we all fly across the Atlantic, we're riding with a GE90 engine on the 777. That's a power by the hour philosophy. And we're going to a similar philosophy here with the subsea stacks. They do it for rotating equipment in compression plants and power stations. So it's already well-known and if you actually study those industries, you can see that when you go to this construct, there is an improvement in reliability and any improvement in reliability puts money on the bottom line for Diamond Offshore and helps out my shareholders. So really the construct here is to have more uptime over the fleet itself based on dragging the original equipment manufacturer to the table with skin in the game. This is what our clients want. This is not a technology push from a Diamond Offshore perspective. This is a demand pull from my clients. The Scepter, I think, was a good arrangement between us and Pemex, but I would probably not connect the dots to the Ambassador. I think it's quite likely here that she will be winding down in 2016, so I wouldn't model the Ambassador beyond where she is today. The relationship effectively stays the same. Obviously, our customers were involved, as we were getting to the finish line on setting up the agreement with GE, but both customers were very, very positive and as I go around the industry and I visit the executives in charge of drilling not just for my own customers, but for other E&P operators out there, they are very positive on this construct. They say it is a win for everybody in deepwater drilling. You pretty much hit it on the head there, <UNK>. Yes, we'll have less depreciation. Of course, the agreement with GE will be treated as an operating lease, so costs will increase there, but they will be offset by cost savings by us for things that we no longer have to provide for for that BOP maintenance. So at the and, as Mark said in his opening remarks, we don't see it having a great bottom-line impact or very material, particularly when you factor in our expected increased utilization on the rigs. So let me just reemphasize one point here. [Drill] no subsea downtime is the Achilles' heel of our industry. I've used that expression quite a bit. These four Black ships now effectively go to the front of the deli line in terms of desirability from our clients. This is ---+ yes, it's helped us from a liquidity perspective for sure, but more importantly our assets become extremely attractive as it relates to future contracting opportunities moving forward. We're the first to do this in our space. Is there a possibility of further rolling it out throughout the fleet. I would say that there is. I'm not saying at this time that we're going to do it, but this is all about competitive differentiation and I believe that our four Black ships now, frankly, in a market that is oversupplied have become very, very attractive assets from the client perspective. So, yes, thanks for that question. As we put thought leadership in the industry here, it's very important to be focused on the immediate future. We've positioned the Company early for an extended downturn, both from a backlog, liquidity and an operating cost perspective. And we are executing very well on the short-term strategy, but it's also important not to lose sight of the longer term either. So as much as we listen to our clients' needs on pressure control by the hour, we're also listening to clients' needs as it relates to efficiency gains. For example, on the 80% of a time, a rig is actually over the wellhead and not drilling. The conundrum is how do we lower cost through efficiency gains and here, at Diamond, we continue to ask ourselves such questions and we have some neat answers that we share with our clients. They like what we're saying. But I bring you back to the capital allocation conundrum. My management team and I are laser-focused on maximizing shareholder value over the long term and in this respect, it's important that we have a series of strategic options that are available to us. We've pulled the trigger on pressure control by the hour, but ---+ and that's somewhat of a no-brainer. However, I cannot say it's the right time to declare on other strategies, for example. The important thing is to have as many alternative options available, frankly, as possible and the floating factory is simply yet another option that I have on the table. But, first and foremost, I have to review everything in the context of long-term shareholder value and right now, at this moment in time, frankly, we're just keeping that on the table as an option for further down the road. So, <UNK>, that is correct. Just to be specific here, what happens today is if the subsea stack goes down for performance-related issues around reliability, etc. , and we have to pull the stack, then, from the client's perspective, obviously, they are not progressing the well; yet they are still paying for the spread costs. From our perspective, in the most part, we go off day rate, because, again, we're not pursuing the well. The OEM, the manufacture of the stack, doesn't suffer at all. So part of this construct moving forward is I am paying a daily rate for pressure control moving forward. When I have to pull the stack, I no longer pay that daily rate, so I'm off rate, the OEM is off rate and the operator is suffering the cost of the spread that he's paying for for the other services. So I'm still off rate, but I'm no longer paying for the BOP stack on a daily basis and if during the course of the year the OEM performance is below a metric that we're already at today then not only are they off day rate, but they pay me a malus payment for poor performance. So effectively what GE have agreed to do is guarantee performance backed up by financial consequences. So for the first time in the industry, the OEM is sitting at the table when we have problems as an equal stakeholder, as the driller, the operator and of course the OEM. That's a good question. Part of the reason the negotiations took so long was to actually sort out and get agreement on reliability. In essence, there's no real change to the liabilities moving forward. At the end of the day, the manufacturer of product liability remains in place as do other liabilities, so there's no real change moving forward. But that was an extensive part of the negotiations that we undertook with GE. Yes, okay, so this is an industry first. It made sense that we looked at our brand-new rigs. Well, in essence, they are brand-new. One of them has been ---+ a couple of them have been drilling for well over a year now. It was easier to convince the OEMs to buy back the BOP stack, the subsea stack, on equipment that was relatively new. If it's equipment that was sold to a driller let's say five years ago, I think that conversation will be a much harder discussion because obviously the passage of time creates an understanding of just exactly how well was the stack maintained and then you've got further discussions around the true valuation of the BOP. One of the things I insisted moving forward was this was not just a standard maintenance contract. I didn't want to do that. I needed these guys to truly sit at the table with skin in the game and I wanted them to own their performance, which included owning the stack. This is perhaps something that's easier to do on new drill ships as they come out, but what made it a little bit more complicated is I needed to sell the BOP stack back to the OEM and that's actually harder than you'd naturally think. I think it will be even harder on stacks that are older than the stacks we've got on our drill ships, take it from me. Well, I can't speak for what their budgets are, but right now at this moment in time we're planning to deliver the GreatWhite as planned and to move forward. The GreatWhite was supposed to be delivered in December of last year, but we've known all along and have been in communication with our client that there will be let's say a six-month delay on it, but our contract is quite robust and the rig called for a delivery before the end of this year and we're still on target. We've got a lot of wiggle room on that to deliver it accordingly. Yes, that is an interesting question. A lot of things actually came together quite well for us to kick this off. First of all, GE understands this kind of concept. I spoke about how they approach the aviation industry and the industrial products they sell in there. I spoke about what they do with rotating equipment and compression power and power plants. So they already get it. We looked at when GE introduced let's say power by the hour to the aviation industry. We looked at how the uptime improved once they were on that construct. Then we ---+ our newest assets in the fleet also had GE stacks on them. So it came together quite well and, yes, we did approach GE. We wanted to ---+ if you stand back and you look at the issues in our industry and you look at it from an economic perspective, this isn't just about day rates. This is driving efficiency gains. This is what I did in my prior life when we were developing unconventionals here in North America. It's about efficiency gains. And you've got to bring efficiency gains to deepwater drilling to make the ---+ to make it economically viable at this kind of oil price. We know the oil price is going to come back up. And then the other thing we need to do is differentiate Diamond from the rest of the fleet that's out there, and I think everything came together well. GE understood what we were looking at. We had long and detailed discussions over the course of what is an eight-month period to put together this construct. There was no precedent. But we knew what we wanted to do, GE got it and their CEO really came to the table on this, GE Oil & Gas and gave us a vote of confidence that we're the people that they wanted to bring this to the market to as well. So it all came together due to the fact that GE knew what we wanted, that we had the assets already on our new drill ships and so here we are. I'm not sure I've got an easy answer for that one, but, every quarter, our Board meets to consider the dividend. We agreed that our balance sheet is relatively strong and we're comfortable with our liquidity. But let me put it this way, there will be winners and losers in offshore drilling as we progress through what is frankly a super cycle. And we are positioning Diamond to be one of the winners by enabling us to take advantage of the right opportunities if and when they materialize. And I spoke about many different strategic options that we're considering right now. And whether it's a floating factory, whether it's distressed asset purchase, whether it's consolidation through M&A, it's all on the table. But my management team and myself are positioning us that when the cycle starts ---+ we start exiting the down cycle, that Diamond Offshore is one of the best, if not the best positioned company to take advantage of the wave so that we ride that wave when it comes back because perhaps let me answer the question in this way. Deepwater drilling will recover; of that I have no doubt. What I can't tell you is when. And to that point ---+ well, let me reiterate, in the past, we have not given future guidance as to our long-term dividend policy and we've not changed that stance. So that's as much as I can say. Yes, both very, very good questions. Now I will remind you that the near-term impact of the arrangement is not material to earnings. So that's as much as I'm going to say here from a competitive perspective because I don't want to broadcast exactly what's going on here. <UNK> pointed out what will happen in terms of how it looks on the financial statements, but be careful around suggesting this is going to be hugely incremental or decremental to earnings moving forward. And as to uptime, this is not ---+ we're not switching a light switch here and then tomorrow automatically we suddenly have improved reliability. This is a journey. This is a journey that's going to see incremental improvement and the same happened in aviation, the same happened in power generation that over the course of time will improve subsea downtime. We looked at how much money we lost in 2014 relating to subsea stack pulls and it's significant. It's a very, very large number. If I can improve or reduce that number by 50%, then it's material to my shareholders. So it's an incremental improvement and what it means is we will be ---+ our revenue uptime will improve moving forward and my partner, in terms of the OEM providing the subsea stacks, will have a stake in the game from a financial perspective. So, yes, it's going to be beneficial from revenue, but I would admit it's going to be hard to model for you guys right now. I will remind you that with our current status and reliability, if that doesn't improve on our subsea stacks then the OEM is already paying us a malus payment. So they're expecting it to improve moving forward. We're expecting it to improve moving forward and our clients are applauding our efforts. Let me take the first half of that question first. In terms of from a contract renegotiation standpoint, look, the current market provides ample incentive for operators to try to renegotiate contracts. Any even observer in the market can see that today, so we get that motivation. That said though, we do believe in the validity of our contracts and we are willing to work with customers to find mutually agreeable trades that help both parties. We did that with Petrobras earlier in 2015 on the Courage and rotating out some older rigs. We did that with other clients along the way. So those trades are things that we have, I think, a history making where they are good for both parties. But I have to emphasize though we do stand behind the contracts and what they mean. Where we could help a partner solve their problems and help our shareholders at the same time, that's good. But absent I think one customer with Pemex that has some unique rights, absent that though, we do stand behind our contracts. So from the second part of the question, yes, it's a 10-year agreement. I don't think deepwater drilling with sixth-generation assets is going to disappear. I would argue, however, that you have this kind of construct and I really believe that not all sixth-generation assets are going to be able to do this. Let me just say that we have the highest ---+ we share the highest credit rating amongst all offshore drillers who are still investment-grade. We received another $210 million of liquidity moving forward. I can't say that every OEM is going to do that with all of my competitors. Now, to that point, within the contract, there is an ability to ramp down the costs and reduce the services being provided if the rigs go idle. But when my rigs come back for contract renegotiations, we all know that deepwater drilling is still going to exist. My rigs will be ---+ let's say the expectation is they will be very, very attractive in the market because of this construct and they will go to work. So I don't think that there's much risk at this time of these assets becoming idled moving forward. And that's the key issue here. What we have done is we've differentiated our assets. I would like to remind everybody once again this was not a liquidity issue for us. This was to lower downtime, improve efficiencies of deepwater drilling, lower the costs for my clients and make my drill ships or my assets more attractive than the others that are out there in the industry. Well, I don't want to give too much away, but basically it goes down to the cost of borrowing. The other costs go to zero. So <UNK>, this is as it relates to the BOPs we have on the rig itself. These BOPs are actually very, very heavy items. It's actually quite difficult ---+ well, it's not difficult, it's just a huge logistic issue to transfer a BOP off a rig and get a new one on there. But BOPs are modular, so part of the construct here is actually we'll be first in line from modular upgrades to the BOP stack itself all in terms of driving reliability forward. So this is not sailing around the world and picking up a new BOP. This is a continuous conditioned maintenance type contract moving forward where GE as the OEM is continually incentivized to improve availability and uptime at the BOP stack over and above where we are today in the industry. So again, one of the things of partnering with GE on this deal is because they have a huge global footprint, so we're not really worried about their ability to service us as we pick up contracts around the world. But I don't expect we will be switching BOPs on and off the rig on a carte blanche manner. This is about continuous upgrades, modular improvements to the BOP stack over the course of time that just continues to drive availability and uptime. So again, I'm going to be very, very careful here because I don't want to broadcast ---+ I don't want to give our competitors a leg up on adopting this construct should they so desire. This is an expensive negotiation over a long period of time. All I'm going to say, again, is that the near-term impact of the arrangement is not material to earnings, so draw your own conclusions from that. It's not a significant impact on cost for us. There's various elements of the deal itself as it relates to how we reward GE for leasing or the service arrangement moving forward, however you want to put it in the construct. But from the perspective of your models moving forward, we're hoping to see an improvement in revenue in the long run, but the cost, the incremental cost to us, as you can imagine, if it's not material to earnings is de minimis moving forward. Okay, so we pay a day rate for pressure control. When the stack is down for maintenance reasons or reliability issues then we don't pay that. Then on the top of that, there is a construct that enables us, if GE doesn't provide an uptime metric, which again I'm not going to share with you all, then a malus payment is due. If, however, they provide a standard, which is much higher than we're at today, then, of course, we provide them a bonus payment because we will more than be rewarded by having additional revenue uptime on these rigs. <UNK>, is your question regarding the renewal of the GE arrangement. Yes, yes, fair enough, yes. So do have the ability to renew that agreement before the 10 years is up. We'll have, given the complexity and what it means to continue or not, I think there's a pretty substantial leadtime in the agreement, so we have to declare our intentions. But, yes, there are provisions to renew that agreement. It addresses some of the pricing topic. It's not pre-wired in that sense, but, yes, that is a topic, which, obviously, pricing something 10 years in the future is not an easy undertaking. So it's addressed conceptually, but it's not an arithmetic calculation. So thank you for participating in the call today and we look forward to speaking again with you next quarter.

2016_DO

2017

ALE

ALE #Good morning, everyone, and thanks for joining us today. With me are ALLETE's Senior Vice President and Chief Financial Officer, Bob <UNK>; and ALLETE's Vice President, Controller and Chief Accounting Officer, Steve <UNK>. This morning, we reported second quarter 2017 financial results of $0.72 per share on net income of $36.9 million. When compared to the second quarter of 2016, our favorable results reflect interim rates associated with Minnesota Power's rate review, strong industrial customer demand and a timing-related but still very positive regulatory outcome associated with our Conservation Improvement Program, or CIP, financial incentive. With more than half of the year behind us, we now expect our full-year earnings to be in a range of $3.15 per share to $3.40 per share. Before Steve and Bob go through the financials related to the quarter and share more details on our earnings guidance for the year, I would like to highlight several positive developments from the quarter. In June, we were pleased to announce that Minnesota Power's most recent initiative in support of its EnergyForward strategy. After much discussion and analysis, Minnesota Power brought forward a proposal which would, in total, add over 500 megawatts of renewable energy and renewable-enabling natural gas supply to its increasingly diverse and more balanced portfolio of generation. This proposal includes a $350 million investment opportunity that will allow Minnesota Power to add more renewable energy, while still adhering to key EnergyForward principles of affordability, reliability and environmental stewardship. Minnesota Power and Superior Water, Light and Power's respective rate reviews have continued to advance. In working closely with the Wisconsin Public Service Commission, we are pleased to report that the SWL&P review was recently concluded with a 10.5% return on equity, a 55% cap structure and approval of all of SWL&P's recommended infrastructure improvements, including automated meter reading and gas distribution pipeline upgrades. The final order is expected in August of this year, at which time final rates will go into effect. As we have emphasized in past quarters, one of ALLETE's strategic objectives for its regulated enterprises is to earn a fair return on investments made to serve respective customers. To date, we have worked diligently with regulators in Minnesota and Wisconsin to supply them with requested information that details the cost of service provided to customers, including compensation to our investors, who provide the needed financing in support of these essential services. ALLETE Clean Energy is making significant progress with its multifaceted growth strategy. The ACE strategy includes optimizing its existing 535-megawatt fleet of contracted renewable generation as well as expanding its national renewable generation presence with its $100 million investment in production tax credit-qualified turbines. Specifically, the ACE PTC strategy includes refurbishing qualified facilities within its existing wind portfolio, building new projects for quality off-takers with long-term power sales agreements, executing build-own-transfer projects for others and acquiring existing renewable energy projects from others, some with potential PTC-related refurbishment opportunities. As disclosed in our 10-Q this morning, ALLETE Clean Energy has plans to refurbish 385 wind turbines at 3 wind farms in Minnesota and Iowa. This approximately $80 million reinvestment initiative will improve the turbine performance and reliability, generate federal production tax credits at each site and support the renewal of power sales agreements at the Storm Lake sites. Two previously announced projects that will provide future significant earnings and cash flow for ALLETE Clean Energy include the expansion of up to 50 megawatts of wind energy facility for Montana-Dakota utilities, and a new 100-megawatt wind energy facility to be built and operated by the ACE team to service a long-term power sales agreement with Northern States Power, a subsidiary of Xcel Energy. The NSP Xcel initiative is still subject to final regulatory approval, which is proceeding well at the moment. I am pleased to report that Minnesota Power's taconite customers continue to operate at full production levels, and we are optimistic that market conditions will remain favorable for these customers into the foreseeable future. David Burritt, CEO of United States Steel, which owns and operates Minntac and Keetac iron ore facilities in Northeastern Minnesota, during the recent USS earnings call expressed optimism about the future and about likely Trump administration actions related to steel dumping. Minnesota senators Amy Klobuchar and Al Franken, along with Congressman Rick Nolan, continue to provide strong leadership in this area. We support the federal government's continued work to address unfair trade practices that result in excessive levels of imported steel coming into U.S. markets. Meanwhile, during Cliffs Resources' recent earnings call, CEO Lourenco Goncalves expressed confidence in the iron ore industry. Goncalves highlighted a 15% year-over-year increase in revenues and also spoke about a sizable investment in next-generation iron ore products. Cliffs is investing approximately $700 million in a hot-briquetted iron, or HBI, facility in Toledo, Ohio. We are pleased for Cliffs and their investment in the Great Lakes region. As you know, most of Minnesota's taconite is utilized within the Great Lakes region and this upgrade in technology bodes well for Cliffs and for its iron ore mining operations in Minnesota. Minnesota Power is the electric service provider to all of Cliffs' operations here in Minnesota. I will provide some additional thoughts on what lies ahead for the remainder of the year in a moment. But first, I will ask Steve and Bob to go through the financial details. Steve. Thanks, Al, and good morning, everyone. I would like to remind you that we filed our 10-Q this morning and encourage you to refer to it for more details on the quarter. For the second quarter of 2017, ALLETE reported earnings of $0.72 per share on net income of $36.9 million and operating revenue of $353.3 million, compared to $0.50 per share on net income of $24.8 million and operating revenue of $314.8 million for the second quarter of 2016. Earnings were diluted by $0.03 for the second quarter of 2017 due to additional shares of common stock outstanding as of June 30, 2017. Operating revenue from ALLETE's Regulated Operations segment, which includes Minnesota Power; Superior Water, Light and Power; and the company's investment in the American Transmission Company, increased $30 million or 13% from 2016. The increased revenue was primarily due to higher fuel adjustment clause recoveries, interim retail rates, financial incentives under the conservation improvement program and higher kilowatt-hour sales. Fuel adjustment clause recoveries increased $8.5 million due to higher fuel and purchased power costs attributable to retail and municipal customers. Interim retail rates for Minnesota Power, which are subject to refund, were approved by the Minnesota Public Utilities Commission and became effective January 1, 2017, resulting in revenue of $7.8 million in the second quarter of 2017. We have evaluated the need for a reserve for interim retail rates and concluded that a reserve is not necessary as of June 30, 2017. We evaluate the need for reserves for interim rates each reporting period. Financial incentives under the Minnesota Conservation Improvement program increased $5.5 million from the second quarter of 2016 due to timing of the Minnesota Public Utilities Commission approval. In 2016, the financial incentive of $7.5 million was recognized in the third quarter of 2016, upon approval by the Commission. Revenue from kilowatt-hour sales increased $4.7 million from 2016, primarily due to higher sales to industrial customers. Sales to industrial customers increased 20% due to increased taconite production and the commencement of a long-term power supply agreement with Silver Bay Power in June of 2016. Sales to residential, commercial and municipal customers decreased 3% due to warmer temperatures in 2017. Heating degree days in Duluth, Minnesota were approximate 5% lower in the second quarter of 2017 compared to the same period in 2016. Sales to other power suppliers decreased 15.3% from 2016 as a result of increased sales to industrial customers. On the expense side, fuel, purchased power and gas expense increased $14.1 million or 18% from 2016, due to increased kilowatt-hour sales and higher fuel costs. Fuel and purchased power expense related to our retail and municipal customers is recovered through the fuel adjustment clause. Operating and maintenance expense increased $2.8 million or 5% from 2016, primarily due to higher salary and benefit expenses and a $1.3 million increase in Conservation Improvement Program expenses in 2017. Equity earnings in our investment in the American Transmission Company increased $1.2 million or 29% from 2016, due to additional capital contributions and period-over-period changes in ATC's estimate of a refund liability related to MISO return-on-equity complaints. ALLETE Clean Energy's net income increased $1.2 million, due to higher operating revenue and lower operating and maintenance expense compared to the same period in 2016. U.S. Water Services recorded net income of $600,000 for the second quarter of 2017 versus net income of $1 million for the second quarter of 2016. The decrease in net income was primarily due to higher operating expenses, partially offset by higher operating revenue. Bob will have a few more comments on U.S. Water Services' results for the quarter in a moment. Our Corporate and Other segment, which includes BNI Energy and ALLETE Properties, included net income of $100,000 for the quarter compared to a net loss of $1.4 million in 2016. The change is primarily due to a lower accretion expense, related to the contingent consideration liability and lower interest expense. Net income at BNI Energy was $2 million in the second quarter of 2017 compared to $1.8 million for the same period in 2016. ALLETE Properties recorded a net loss of $400,000 in the second quarter of 2017 compared to a net loss of $500,000 for the same period in 2016. ALLETE's effective tax rate for the second quarter of this year was 16.5% compared to 15.9% for the same period in 2016. We expect our annual effective tax rate in 2017 to be higher than 2016 due to higher pretax income. ALLETE's financial position is supported by increased cash flow and a strong balance sheet. Cash from operating activities was $184.4 million year-to-date and our debt-to-capital ratio was 43% as of June 30, 2017. I will now hand it off to Bob for additional highlights and an update on our 2017 earnings guidance and outlook. Bob. Thanks, Steve, and good morning, everyone. Last December, we initiated our 2017 earnings guidance at a range of $3.10 to $3.50 per share. As Al mentioned earlier, with more than half of the year now behind us, we have narrowed our earnings guidance range to $3.15 to $3.40 per share. Our updated guidance range reflects the additional dilutive impact from the shares already issued in the first quarter of 2017 to prefund ALLETE Clean Energy's previously announced growth initiatives using the $100 million investment in production tax credit-qualified turbines. In addition, lower heating degree days in Minnesota Power's service territory has impacted revenue from our original expectations with heating degree days approximately 8% below normal. We now expect capital expenditures for the Great Northern Transmission Line to be approximately $60 million for 2017, down from our earlier estimate of $120 million, impacting current cost recovery revenue in 2017. The reduction in 2017 is partially weather-related and later-than-planned completion of the transmission structure design phase of the project, which, of course, needs to be ---+ occur before the materials are ordered. We still anticipate the Great Northern Transmission Line expenditures to be approximately $300 million to $350 million in total and to be completed by 2020. Our guidance continues to include Minnesota Power's interim rate request of $32.2 million. The high end of our guidance range continues to assume the positive impact on depreciation expense for the Boswell Energy Center life extension request. At this point, we have not recorded any benefit of the Boswell Life Extension in our 2017 earnings, as we work with our regulators on approval of our life extension request. As our rate case and the 2017 depreciation docket moves forward, we will evaluate the amount and timing of any depreciation expense reduction to be recorded. Minnesota Power's rate review continues to move ahead on schedule. Working with intervenors and further developments as the rate review has progressed, we now expect our final rate request to be approximately $49 million on an annualized basis. Minnesota Power participated in settlement conference meetings last week. We did not reach a settlement at that time, but will continue to work with intervenors in our rate review. Rate case settlements are not common in Minnesota, but we believe the constructive nature of the Minnesota regulatory environment supports reasonable outcomes. Next week includes evidentiary hearings with the administrative law judge. The administrative law judge report and recommendation are due in November. We continue to work with our intervenors and regulators to achieve a reasonable outcome in our rate filing and are committed to earn our allowed rate of return in the future. As Al indicated, Superior Water, Light and Power's rate case has been completed in a manner that continues to illustrate Wisconsin's constructive regulatory environment. The filing concluded with an overall return on equity of 10.5% and a 55% equity ratio. On an annualized basis, we expect additional revenue of approximately $2.5 million. We anticipate new rates will take effect in the third quarter of 2017 upon receipt of the final rate order. At our Energy Infrastructure and Related Services businesses, our earnings in total for the quarter were slightly higher than in 2016. ALLETE Clean Energy posted strong financial and operating results with higher revenue in the quarter, while keeping operating and maintenance expenses lower than in 2016. U.S. Water Services results for the quarter were impacted by weather conditions in the Northern and Western United States. Cooler weather impacted chemical sales for cooling towers found in industrial and building HVAC systems in the Northern United States. In addition, heavy rain delayed crop harvest and demand for product supply to food processing facilities in the Central Valley of California. Also during the quarter, U.S. Water Services deployed resources and investment to support entry into the waste treatment and water safety application markets. Overall, our deal pipelines remain very robust for these segments, and we expect to grow these businesses in a disciplined manner in support of ALLETE's earnings and dividend growth objectives. I remain excited about the future for ALLETE Clean Energy and U.S. Water Services. As demonstrated with ALLETE Clean Energy already gaining significant momentum with its strategy, these businesses will provide future earnings growth and strong cash flow for ALLETE. We remain committed to creating shareholder value with these businesses, focused on complementary earnings through our regulated businesses and cash flow in support of our dividend growth. Al. Steve and Bob, thank you for the financial update. ALLETE is a growing energy company with a family of businesses that are well positioned to capture value. This, as we answer our nation's call to transform its energy and water landscape. We have a significant and stable foundation of regulated businesses, complemented by our growing Energy Infrastructure and Related Services businesses. I would like to share a few details on our latest initiatives. Minnesota Power's positioning with its transformational EnergyForward strategy is progressing nicely. On July 28, Minnesota Power submitted a resource package to the Minnesota Public Utilities Commission, requesting approval for a 250-megawatt wind energy power purchase agreement, a 10-megawatt solar energy power purchase agreement and a 250-megawatt ALLETE-owned natural gas-fired generation investment opportunity. Minnesota Power also requested a delay relative to a filing deadline of its next Integrated Resource Plan submittal until February 2019. Minnesota Power is also making progress on its plan to move carbon-free hydro generation from Canada into its service territory with the Great Northern Transmission Line. Site clearing and preconstruction activities commenced in the first quarter of 2017 and Minnesota Power expects the line to be completed in 2020. Minnesota Power's portion of this investment is expected to be approximately $300 million to $350 million and is eligible for current cost recovery. Total project costs of $61.1 million have been incurred through the end of June on its portion of the line, which runs approximately 220 miles to the Canadian border. Minnesota Power's taconite mining customers continue to operate at full production levels and incrementally higher than where they were at this time last year. Supporting further strength for the future is the Trump administration's focus on protecting our domestic steel markets by considering a number of options, including tariffs and quotas on imported steel. We applaud the attention given to address excessive levels of imported steel that negatively impact our customers and undermine our national security. PolyMet's proposed copper, nickel and precious metal mining operation in Northeastern Minnesota has completed its formal permit applications and has reported that the permit application review process is proceeding well. Minnesota Power could supply between 45 to 50 megawatts of new load under a 10-year power supply contract upon startup of the mining operation. Given it is first-of-a-kind nonferrous mining operation in Minnesota history, state regulators have been very deliberate. But PolyMet anticipates completing the needed land exchange and expects to receive final permit decisions later this year and into early 2018. As anticipated in comments from our last conference call in early June, a federal bankruptcy judge approved a plan led by Chippewa Capital Partners LLC. The plan calls for Chippewa Capital Partners to take control of the former Essar project, now named Mesabi Metallics, subject to certain stipulations and timelines as part of a reorganization plan. Over $1 billion have been spent to date on the site, and startup of this operation could generate significant new wholesale load for Minnesota Power. Chippewa Capital Partners LLC has stated it plans to not only mine and process ore, but also to produce hot-briquetted iron, or HBI, which would be used in the fast-growing electric arc mini-mill steel segment of the steel industry. Shifting gears from regulated operations, let me share a few thoughts on ALLETE's Energy Infrastructure and Related Services businesses. ALLETE Clean Energy is firing on all cylinders as it is becoming an established and respected project developer and operator of renewable energy facilities across the United States. ALLETE Clean Energy operates a significant portfolio of approximately 535 megawatts of wind generation and has a robust pipeline of other renewable projects it is currently weighing. As I mentioned earlier, ALLETE Clean Energy has plans to refurbish 385 wind turbines at 3 wind farms in Minnesota and Iowa. The approximately $80 million project involves installing select blades, gearboxes and generators on existing turbines at the Lake Benton wind site in Minnesota as well as the Storm Lake 1 and 2 wind sites in Iowa. The project will improve turbine performance and reliability, generate federal production tax credits at each site and support the renewal of power sales agreements at the Storm Lake sites. In sum total, the $80 million ACE investment could generate approximately $180 million in production tax credits, positively contributing to ALLETE earnings. This strategic investment will sustain ALLETE Clean Energy's position in the marketplace. The investment preserves earnings growth over the life of the 10-year production tax credits at a fraction of the cost of new development opportunities. Already announced and discussed on our last call was the new wind energy facility of up to 50 megawatts to be built for Montana-Dakota utilities under a 25-year power sales agreement. The agreement includes an option for Montana-Dakota utilities to purchase the facility upon completion for a development fee. Construction preplanning and associated regulatory processes are proceeding well. And ALLETE Clean Energy expects to begin construction on the project in 2018. In March, ALLETE Clean Energy announced it would build, own and operate a separate 100-megawatt wind energy facility, pursuant to a 20-year power supply agreement with Northern States Power. Construction on this project is also expected to begin in 2018, subject to regulatory approvals. Our newest business to the ALLETE family, U.S. Water Services, provides integrated water management for industry by combining chemicals, equipment, and engineering for customized solutions to industrial and commercial customers in North America. We continue to believe in the nexus of energy and water and that U.S. Water Services, already a recognized nationwide solutions provider, is well-positioned to take advantage of the opportunities. The ALLETE team continues to execute its strategy and remains focused on answering our nation's call, while growing ALLETE. ALLETE offers a strong value proposition for investors. We thank you for your continued confidence and investment with us. At this time, I will ask the operator to open up the line for your questions. Yes, Chris, Steve <UNK>. Second quarter was earlier than normal. We budget for it in the third quarter. Third quarter is, I'd say, typical, but it could slide into the fourth quarter, but I think you should stick with the third quarter. No. I'd say we're on plan for O&M this year, and we don't see any significant timing differences with that. Chris, we haven't disclosed that. So, Chris, Bob <UNK> here. So weather was about $0.07 in total. And the Great Northern was about $0.07 as well. Chris, this is Al. We got a little bit of a late start, of course, because the Presidential permit was issued so late in the year last year. So that was part of the cause here in terms of some of the delay. But we have every plan right now to stay on track to get the project done by 2020. We have contingencies built in for good weather and for bad weather, and right now I'm still fully confident we will get the project done on time with maybe some variations in capital, like you're seeing this year. Likely to get spread out, Chris, over the subsequent years. Is there another opportunity for settlement discussions in Minnesota. Or is this ---+ should we think about this it's going to go the fully litigated route. So, <UNK>, this is Bob. You should think about it in this manner. We ---+ that would be the ---+ for the week that we plan settlement. So we're moving forward now next week with evidentiary hearings and ALJ in November. Okay. Then the ---+ I think you have 100 megawatts of winds in kind of ---+ or turbines in storage, kind of what's the timeline look like for when some of the things you've bid into could be awarded. And are you anticipating if your IRP is accepted, that ACE could be a player in that. This is Al, <UNK>. We see ACE participating more on projects across the nation, so ---+ not dependent on Minnesota Power, if you will, broadly speaking. So in terms of the pipeline, think more broadly outside the family, if you will, than dependency on Minnesota Power. With respect to the pipeline, nothing new to report other than very robust conversations about power sales extensions, as I said, relative to Storm Lake 1 and 2 with the refurbishment strategy. And then there's just a series of RFPs out there right now from a variety of companies. They themselves looking at the PTC issues and kind of their load growth, their kind of diversity of generation portfolio and kind of where they want to take their business, and so we see opportunities for ACE. We're not ready to disclose anything further at this point in time. And the CIP was $5.5 million, pretax. That's correct, pretax. Yes. So we should just put a 62% tax rate on that in order to get an EPS impact. Yes, it's about $0.06. Bob, Steve and I thank you for being with us this morning, and we thank you for your investment in ALLETE. We look forward to seeing many of you this fall as we travel, and certainly we'll see most of you at the EEI Financial Conference in November. Thanks for your time this morning and your investment in ALLETE.

2017_ALE

2017

PDFS

PDFS #Thank you, and welcome, everyone. If you've not already seen our earnings press release and financial results presentation for the quarter, please go to the investors section of our website where they are posted. On our last earnings call, we said that we expected Q1 revenue to be below total revenue for Q4 2016, driven by seasonality in both gainshare and solutions revenue. While it turned out the solutions revenue actually increased over the previous quarter the declining gainshare revenue compared to Q4 2016 was more than we expected. The decreases in gainshare were almost ---+ across almost all node sites from 45-nanometer to 14-nanometer. The primary weakness was 28-nanometer, while 14-nanometer was down only slightly quarter-over-quarter. On their Q1 conference calls, foundries have discussed an inventory correction in 28-nanometer to continue through first half of this year. We expect our gainshare results will be ---+ to be consistent with those general market trends. To provide a little more detail on this, however, as we have talked with our customers, we believe that Q1 is the bottom of the gainshare decline and we expect improvements throughout the remainder of the year. The improvements will come from growth in 14-nanometer volumes and newer 28-nanometer contracts replacing revenue from older contracts, where the price per wafer has decreased. As a result, we are now cautiously modeling total gainshare for the year to be at or slightly below 2016 levels. As the strengthening gainshare in the coming quarters has to overcome the hole we created in Q1. As we get into 2018 and beyond, we expect gainshare to again grow above the 2016 and '17 levels. Turning to our solutions business in detail. We continued to broaden both our customer base in the markets we serve. As I said earlier, although we had anticipated solutions revenue to be down Q1 compared to Q4 of last year, it was up slightly. This speaks to the continued demand for our solutions from our customer base. Selected contracts signed in this quarter include: our foundry extended their 14-nanometer contract to include, manufacturability ---+ variability reduction; a mixed signal company that uses Exensio-Yield added Exensio-Test to their test operations; a mixed signal company that uses both Exensio-Yield and Exensio-Test renewed their licenses for a multiyear period; our foundry renewed their Exensio-Yield licenses for a multiyear usage period; and a new Fabbrix customer deployed Exensio-Yield and Exensio-Test As to our 4 key strategic initiatives, we continue to see strong interest for our integrated [year end] solutions at the 28-nanometer, 14-nanometer and 7-nanometer nodes. In China, business interest and activity remain high as we work with a number of new and existing customers. Exensio business continues to grow and diversify the customer base. Finally, and most significantly, our Design for Inspection solution continues to gain traction with both our foundry and fabless customers. Each quarter I provide an update about our Design for Inspection solutions, also referred to as DFI. As a reminder, Design for Inspection solves the ever-increasing challenge of inspecting production chips for electrical defects. Conventional inspection allows a semiconductor company to see visual differences in the patterns on the chip. However, many electrical faults are not visually detectable. PDF Solutions' DFI technology is designed to change the paradigm for inspection, by placing small, proprietary CV test structures on chip in a product design. In Q1, we shipped our third DFI tool, an eProbe 150 series, to an existing customer. The purpose of this deployment at that customer is a short-term project to accelerate the development of new DFI applications for reliability and parametric yield control. We anticipate shipping our fourth system to a new DFI customer this quarter. The fourth system is part of the 14-nanometer project that was signed in the fourth quarter of last year. Overall, we are encouraged by our customers continued interest in DFI. With the shipping of our third and fourth tools, and the applications of the first tools in the field, we are building a body of data that demonstrates we can build, ship, install and make tools function with fob automation systems in a variety of settings. For our first 2 customers, we have now taped-out multiple number of on-chip CV instruments that have been included on many process development vehicles and full products. These tape-outs have spanned multiple nodes at each fab. We received continued interest at the first two accounts. The R&D program we began with the third tool this last quarter, speaks to the growing interest in DFI applications. It also highlights the DFI concept, meaning that we can, with the addition of a new on-chip CV instrument, have the DFI system inspect different metrology and different defect types without developing a new machine. This is important because machine development is slow and costly, while CV test structure and software development can be done with minimal time and money. Our first two machines are running with high uptimes. One of the two systems is now being qualified to run on processes released to manufacturing and inspecting CV test structures on product radicals. Customers tells us that conventional e-beam tools do not have the ability to see low-yielding wafers as the process matures. As a result these tools are typically used more in R&D than production. Our DFI solution, however, because we designed it to include some on-chip CV instruments that are very weak, we see failures that correlate with product yields even when the yields of the product are good. This provides encouraging evidence that our DFI solution could be used in production control, and hence explains why this customer is working with us to put in the additional effort to have the tool qualify for mass production. In summary, due to the lower-than-expected gainshare performance and despite the better than expected solutions results, the first quarter was not a good quarter from a financial perspective. However, we are encouraged by 2 key factors. First, while gainshare will continue to fluctuate up and down quarter-to-quarter, recovery is starting and building for the rest of this year. Second, we're having continued success both building business and developing products for DFI, Exensio and yield ramps. The anticipated recovery in gainshare and the continued interest and activity in all aspects of our business should be instrumental in creating a long-term value for our stockholders, customers and employees. I will now turn the call over to Greg. Thank you, <UNK>. As you may have seen in our earnings release. We have posted in the Investor Relations section of our website a management report with detailed comments regarding the financial results of PDF for the quarter. Given that, and the detail available there, I'm going to focus my verbal comments for the quarter on a few key highlights and issues reflected in those results. Turning to revenue first. As projected, total revenues did decline for the quarter as compared to Q4 2016. With total revenue at $24.3 million this is a decline of $4.1 million. Contrary to our expectations, solutions revenue increased slightly during the quarter. Gainshare revenues, however, declined significantly as <UNK> stated. We saw declines in both gainshare revenues both volumes and revenues across nearly all major customers and process nodes. The 28-nanometer node, however, was particularly hard hit, in fact it dropped to 39% of total gainshare revenue this quarter. As we have stated previously, our ability to project gainshare revenues on a near-term basis is extremely limited. Looking at profits, however, given the high-margin nature of our gainshare revenue, our profitability for the quarter was negatively impacted by this decline. Non-GAAP net income for the quarter was $2.6 million as compared to $5.6 million in Q4. Looking at the rest of the year, however, we expect gainshare revenue to be flat to slightly down as compared to 2016. This outlook is based on projections of low 28-nanometer volumes during the first half of the year of 2017, which should be partially offset by a continued ramp up of 14-nanometer volumes and the early ramps in the second half of the year of 28-nanometer for some of our newer customers. As we stated at year-end, our gainshare results from several older customers 28-nanometer nodes will be winding down during the year. Timing of these customer transitions creates uncertainties in our full year outlook and the quarter-to-quarter trends. As <UNK> stated, as we get into 2018 and beyond, we expect gainshare to again grow above the 2016 and 2017 levels. Looking at expenses. On a non-GAAP basis, total expenses for the quarter were approximately $800,000 lower than the previous quarter. This reduction in expense was primarily due to onetime expenses incurred in Q4 for customer hardware and recognition of previously deferred project cost that did not reoccur in Q1. The majority of this cost reduction, therefore, was recognized in cost of sales. R&D expenses during the quarter increased slightly as expected. Sales and marketing expense decreased by $400,000 in Q1, related to fewer commissions expenses recognized during the quarter than in Q4. This reduction in expense was partially offset during Q1 by increased G&A expenses including legal expenses related in large part to our concentrated efforts around patenting inventions in our DFI solution. Looking at the balance sheet. Total cash at $114.9 million declined by $1.9 million during the quarter. This reduction was the result of cash used for property, plant and equipment purchases of $2.3 million, primarily related to development of our DFI solution, as well as some cash used in operations of about $400,000. This was offset by $800,000 of cash generated by stock transactions and exchange rate effects in the quarter. Accounts receivable for the quarter including long-term, unbilled, accounts receivable increased by $4 million during the quarter. This increase was primarily related to fixed fee revenues on an existing solutions engagement recognized during the quarter, which will be billed on a quarterly basis going forward. Of the total unbilled AR balance of $34.6 million, we expect approximately $22.7 million to be billed over the next 12 months, more than half of which will be billed during Q2. From a tax perspective, our GAAP tax benefit for the quarter was $1.2 million, driven by our Q1 pretax loss and one-time tax deductions. Cash taxes incurred for the quarter were about $200,000. For the year, we still expect our overall GAAP tax provision rate to be in the range of 37% to 39% of pretax GAAP income. Cash taxes incurred for the year are expected to be in the range of 27% to 29% of pretax GAAP income. In summary, while gainshare revenue for the quarter was below our expectations, our solutions business has remained strong, led by our DFI efforts and Exensio. Furthermore, business activity levels within Asia continue to accelerate. Overall, we still expect total revenue to grow year-over-year. However, we now expect the growth rate to be in the low to mid-single-digit range. With that, I'll turn the call over to the operator for Q&A. We've been tracking that <UNK>. For sure, some of the foundries reported lower percentages in 28-nanometer revenue over previous quarters than others. Even if you look at the largest foundry in the world, they've actually, at least for Q2, forecasted down quarter on 28-nanometer volumes. I do think, in Q1, they may have affected pricing, and hence, taken some share from some of the other foundries. Some who want to do less gainshare. We did notice that, as Greg said, both volumes were down and our revenue per wafer was down as well. So I think pricing is getting affected. Yes. So it's a great ---+ we do expect, particularly in China, as the factories come up there, there's incremental or specific tax incentives for our customers to produce in China because those who sell in China get a relatively substantial tax-advantage. So we see a lot of activity from our customers who have factories in China, building out capacity there. And I suspect that, over time, as we get through 2017, this is why we have some confidence about the second half of the year gainshare in 28-nanometer and into 2018, the volumes will recover greatly at the factories that have capability on 28-nanometer in China. And outside of China if you look in Taiwan, and the U.S. and Europe you've also seen a number of announcements about new nodes like 22-nanometer and some of the newer varieties of non-bulk CMOS. We are participating in some of those from a gainshare perspective, and we expect those to start taking off as folks outside of China differentiate with newer capability. Yes. So we have everything for the Gen 2 machine in our lab now, and have put the whole thing together, and now are in kind of system debug at this point. We still anticipate being able to scan customers wafers in Q3 and be able to do betas by the end of this year. So we remain on track with what we want to get done with the Generation 2 machine. I would point out, and that's part of the reason why I made the comments, about manufacturing, our anticipation on the Gen 1 machine was, it was an R&D-only tool. We thought there were good applications for R&D. Over the past couple of quarters, particularly this last quarter, with our first ---+ one of our first customers, we are now basically putting that machine online for manufacturing of ---+ inspection on manufacturing wafers for a real product. And this is because even though it only can measure test structures in the scribe line, those results are seemingly correlating with product. So even the Generation 1 machine, we think, actually has a manufacturing application more than just an R&D application. And that has been a bit of a surprise for us, of course if you talk to our engineers they'll tell me it was designed in from the beginning. But we are pleasantly surprised that, that actually has worked out as they had prepared for. Yes, as always we are always looking for incremental efficiencies and spending savings. I think with the risk in the gainshare, that just drives that desire even more. So we are going through exercises right now to see where it makes sense and where it doesn't make sense. We're always in that trade-off for key investments. Fighting against incentives to reduce cost. But overall, we are working on that. I don't think it will be huge impacts, but it will be material. Yes, I would say flat to down. If you look at what growth we are generating, it's principally going to be in the solutions business, while those margins are improving a little bit, they're still not the same as gainshare, which is nearly 100% margin. So as we make that mix shift, and a slowdown in top line growth, earnings are definitely impacted. We try to offset some of that with cost savings, but it won't be all of it. So I would say flat to down. Yes. Sure, <UNK>. 28 have also come down, right, in terms of the wafer selling prices too. As the 14s have come down. Seems like, to us, there's been about a consistent factor of 2 in revenue per wafer 14 to 28, roughly, give or take a little bit. And that depends, just to a great extent, on the number of metal layers and some other factors, but if you say that 28-nanometer wafer is in the $3,000 range, the 14, 16-nanometer wafers are north of $6,000, but then, they are definitely lower than they were, let's say, 6 months ago. So just getting back to the 28-nanometer business. What did you say the percentage was of the 28-nanometer Gainshare versus where it's been in the past. It was 39% in this quarter. And for last year, it averaged 63%. Okay. And then, you said that business was a little weaker at some other nodes as well. It seems like we should be in a ramp phase for 14. So I was wondering if you can just give a little more color there. Yes. We believe that we are in a ramp phase. We've gone back and checked with our customers on 14 and we see multiple customers still expecting volumes to increase as they go through this year. Like I said it was down slightly on 14-nanometer, this we thought was mostly seasonality. There was kind of a buildup as you got through the end of 2016, and it tends to be a little bit of a slowdown in the first part of the year. So that part of it wasn't too big a surprise to us, but we did also see decreases on 45, 40, 32, I mean pretty much every node they went down. They don't contribute as much to gainshare as 28 and 14 do, so the total magnitude in dollars wasn't large. But I think there's something like 14 node sites that we collect gainshare on. And 13 of the 14 were down and one was flat. So how does that compare to all the data we hear about guys like (inaudible) that give capacity-driven technology to the marketplace. They've started to really ramp up business lately because units ---+ they're seeing a lot of unit growth in the industry. Is it just timing of when these units are being produced. It's a great question, Tom. And we've been trying to go back through and rationalize and understand what's going on ourselves. We do believe a lot of this was 28-nanometer-specific and so I think that, that was ---+ and I think if you just look at the press from GSMC and UMC it's very consistent that they have all seen that, and I suspect, you look at the foundries that don't report that are private or part of larger entities, they are seeing similar behavior as those guys are. Yet, when we speak with customers they remain relatively bullish for the year and that's ---+ hence the reason why we believe ---+ we've gone back and talked with them where they think volumes will be for the remainder of the year. They all do believe that volumes come back. So I think they believe it's mostly momentary. Okay. So does this feel like, essentially, what happened in the first quarter of a year-ago or the dynamic's a little bit different. Greatly. Very similar to what happened to the first quarter a year ago. A little bit larger in magnitude. Okay. I guess, moving on. When you look at the Gen 2 product you said that customer scans available in the third quarter, maybe a beta site in the fourth quarter. Is that a beta sight, meaning you're going to send a tool to a customer. Or is it done in your facility. We ---+ that will be driven by how we work with customers. We know that when we send a tool and set it up you lose the quarter when you do that. So that's going to be a little bit depending on what their specific relationship is with the customer. But we would want to be in a position that we could ship it out at the end of the year should we need to ---+ should there be demand for it. Okay. And based on what you've learned over the last few quarters as far as getting the parts, there's no long lead time marks that will be an issue ramping up, over the next year or so. That's a great question, Tom. Yes. We are looking at that relatively closely. There a lot of long lead time parts. There's no question about it. And so we have to start looking as we get to the end of the second quarter, what we do about ordering additional parts for the second-generation machines, beyond the first few. We've already basically ordered parts for, at least the first few machines, for it. From these, the longest lead time parts. Yes. All right. And then, <UNK>, when you look at all the moving parts in your business today, if you look out to 2018, has your view of the revenue opportunity changed at all. Was it different a quarter or 2 ago. No. It really hasn't. I mean, I think, for us, we still see, as I kind of highlight on the quarter, a couple of really super encouraging things. The first thing is what we've a seen with DFI and really continued to be impressed with what it's been able to achieve with the customers. And I think our customers see that as well. The second thing, and the reason why I said, I always select contracts to highlight. I highlighted a series of Exensio contracts. I think in half the cases at the contract site, I highlighted, the customer ---+ no, more than half. The customer purchasing Exensio was going ---+ either being acquired or recently announced being acquired and hadn't closed yet, or being spun off as part of an acquisition. And yet they were still all moving forward on all those contracts. And I speak ---+ I think it speaks to the value that the system is bringing the customers. So I was really encouraged by that business and what was ---+ could've easily been a situation where the customer said, well, we're going to get acquired, we're going go back and wait and see when this closes, what systems we put in place. But in part, I think, because we are, really, already in so many customers, at least one part of Exensio maybe Yield or Control or Test as folks merge and acquire with each other, they go and look at getting to standard systems, it puts us in a better and better position because by far the system that most people have experience with is Exensio. So it lets us just go through and structure a larger and bigger engagements with them. And then, finally, the activity in China remains quite high and I think we see more and more of the business moving to Asia. You've already seen that as we talked on our conference calls, about the percentage of our revenue coming out of Asia, primarily Taiwan and China. And we see that continuing to build. So we don't really see much difference in 2018 than what we saw in the past. We will be watching pricing on 28-nanometer wafers. I think as Greg raised the question about what do we think is going to happen in the future as capacity comes up in China, we do believe there will be pricing ---+ more pricing pressure on 28-nanometer wafers. Okay. But it should be somewhat offset by just higher volumes too, with the ramp. Exactly. That's correct. Okay. We want to thank everyone, again, for participating on the call. And as we said, while we had disappointing gainshare revenue, we're very encouraged by the activity we have with Design for Inspection, Exensio, and our Yield ramp business. We look forward to talking with you again in the next quarter. Thank you. Goodbye.

2017_PDFS

2016

B

B #Yes. Basically what's happening, <UNK> is that the shops aren't operating optimally as they absorb the NPI. Pricing-wise in the quarter we spiked it out but not meaningful. If you look at the quarter at a higher level, what you see is that the predominant impact was as a result of overall sales volume. And that was driven, <UNK>, by three primary things. One was, if you recall, the pistons and cylinders that we lost last year and are currently in a dispute over, that was a portion of it. The lower RSPs, which are high margin in the quarter, and then the combination of those two with the new program ramps were the majority of what made up the change in up margin. Correct. Thank you. Yes, this is <UNK>. So on the operating margins side, as you mentioned, right, NGP, we went through a significant investment to increase the internal capacity given the global growth out of NGP as well as their expansion into machine and vehicle as <UNK> noted before. We went through a period of time where we had to outsource a lot of that work. We're now in the throes of being able to insource and take on that capacity in house. We've gone back to margin profiles that were consistent with the past as you mentioned ---+ the higher margin profile of NGP, higher margin profile out of Synventive within molding solutions. Those are driving some pretty good favorability on the operating margin side, with the fact that we closed out to quarter at 17%. As you noted, we don't disclose margins below that. But we're on the higher end of that mid-teens clearly and hope to continue to drive productivity improvements and leverage the growth we talked about before in the second half. We had a very strong second quarter, both in terms of operational performance as well as productivity. We continue that into the second half of the year. We'll definitely be on the high side of those mid-teens. Driving the Barnes enterprise system is clearly a global sourcing, functional excellence, the operational excellence, clearly has taken root within our industrial segment. Thank you, Ed.

2016_B

2016

MMC

MMC #Okay. Let me hand off to <UNK> a little bit just to talk a ---+ give you a little bit more flavor on Oliver Wyman, which obviously over the last several years has been our fastest-growing operating company. But we've said many times in the past it will be our most volatile operating company as well because of the nature of its business. And then after <UNK>, we'll hand over to <UNK> and just talk a little bit about Brexit and what he's seeing right now within Mercer. So, <UNK>. Sure. Let me give you some context before I go straight to the third quarter. I mean, Oliver Wyman is a strong business and we're very confident that over time we can grow it at mid to high single-digits, as we've indicated consistently. However, quarter to quarter there will be a fair bit of volatility. And the reason for that is that the majority of our revenues are nonrecurring and we need to generate them as new business every year. So in any one quarter, we can have very strong growth, like you've seen in first quarter of this year or through 2014; but we can also have some downside volatility. In addition to that, we've had a few very strong years in Oliver Wyman, setting up some pretty tough comparables for us. But in the third quarter, we will see a decline. That comes primarily from our Financial Services business, which has grown even faster than Oliver Wyman overall. And beyond Financial Services, we're feeling only a modest slowdown at this point across the portfolio, driven by the slower economic growth expectations, exacerbated a little bit by Brexit. We still see very little to suggest this is any structural weakness, and the business still feels very sound. So we're expecting the dip to be short-term, although it may take a quarter or two to work out. Thanks, <UNK>. <UNK>, you want to talk a little bit about Brexit and what you're seeing at Mercer. Yes, sure. I mean, I think there is a lot of continued uncertainty, of course, around Brexit and the short- as well as long-term implications of such. In the early days, as you can imagine, there's a significant amount of discussions that are taking place with our primary clients around things like workforce planning, what's going to happen if migrant issues are resolved one way or the other, what potentially could happen in terms of the investment strategy going forward for pensions. And all of that we are actively involved in. Throughout those discussions you can imagine there's a bit of a slowdown in terms of their discretionary spend until the path is clearer and until we have an opportunity to propose some strategy on how to go forward. But let me clarify that. Increased uncertainty and market volatility will likely create some opportunities for us and as clients are going to look for advice, of course, to manage in that uncertain world and through the issues. So in the longer term, we look to develop these solutions, to continue to meet these emerging needs. And as I said, examples would be the potential changes in the flow of capital investments as well as in regulations with regard to workforce, benefits, and pension coverage. <UNK>, you want to take that. Yes, <UNK>. Just a couple things. First on the sensitivity: as we said in our 10-K, roughly 50 basis points of discount rate change will have a $35 million or so impact on earnings. The reason we included the comments on pension is just because it is so topical. We've gotten a lot of questions from investors, and it's hard to pick up a newspaper without reading something about it, given the low interest rate environment. So we just wanted to share where ---+ how we're thinking about it right now and wanted to highlight what I just talked about, that we are less sensitive today to interest rate volatility than we were. If you go back a couple years ago, we closed our largest defined-benefit plan in the UK, we closed our Irish plan, and we made the changes that we talked about to our US plans. So we have less sensitivity, so that's a factor. And remember what really matters is the interest rate environment at the end of the year. So although we've seen a drop in rates here in the first half of the year, just in the US in the last couple of weeks rates have come back a little bit. And asset values have actually come back off their post-Brexit lows. So how we're looking at this, we're at the very beginning of our planning process, and as I said a few minutes ago pension expense is just one element of an overall expense base that we manage very actively. We manage to deliver a great result. So given where we are in the year, we can see this coming, we can plan under a number of scenarios. And based on where we see things today, we expect we'll be able to limit the impact of pension volatility on earnings just as we have for the last couple of years. Excellent. Anything else, <UNK>. Thanks, <UNK>. <UNK>, you want to just take that one. Yes. As I said, <UNK>, in past calls, employers continue to look for solutions for long-term health trend reduction, and our Exchange is certainly one of those that we discuss actively. We're really focused on that and continue to be extending the platform beyond enrollment experience, so it's a full-year platform for employees to consult with. As mentioned in recent past, we see a lot of interest and a lot of discussions, but I would say that we're experiencing a softer conversion to sales than what we had originally anticipated for this selling season. We'll see how it comes out completely at the end, but certainly a little bit slower than we expected. Thanks, <UNK>. Okay. We're not going to break out MMA in any kind of formal way. We have said in the past that our expectation was that it would grow faster than overall Marsh, and that we were comfortable that it was exceeding our expectations on that score. And it did so again in the second quarter. I would look at it this way. That, one, just to reiterate, look over longer periods. So year-to-date and rolling four quarters are more accurate ways of looking at margin expansion. And even though we don't unpack pension, it's fair to say pension was a benefit. But we would have had significant margin expansion in both segments even without contemplating the pension credit that we had. So I would just look over longer periods as to where the likely run rate of expansion is. I'll hand off to <UNK> in a second, but projects can be lumpy as well. So from that standpoint, our capital expenditure over the last several years has been bounded in a $300 million to $400 million annual kind of spend; we're probably still in that area. Some projects are complicated, and we always prioritize. The best projects are the ones that are done well, and so that creates a little bit of a gating mechanism which has an impact. But, <UNK>, do you have anything else to add. Yes, the only thing I would add, <UNK>, I wouldn't read too much into the slow start this year. It's more just timing of starting some big projects, mainly on the technology side. So we had $325 million of CapEx last year. We'll probably be a little bit less than that; but I still expect up in the high $200 million, $300 million range for the year. It's a good question, although we certainly wouldn't preannounce anything on a quarterly call. Yes, but I don't know if you would or not. But ultimately what you're saying could very well happen. There could be opportunities in parts of the world based upon uncertainty, whether it's caused by Brexit or other factors. Clearly macro factors have a role to play in M&A and in continuing M&A. It's too early in looking at Brexit to see whether there's truly any new opportunities that are going to result from Brexit. But suffice to say that your basic premise of we're relatively comfortable at our level of leverage now, and that our level of leverage preserves the capability for us to capitalize on opportunities if they may appear sometime in the future, is accurate. We think we live in a pretty uncertain, volatile world. And in uncertain, volatile world and difficult conditions, they may be the best opportunities that you ever see. And we certainly want to preserve the ability to capitalize if they so appear. Next question, <UNK>. <UNK>, you want to take that. Yes. Again, we could ---+ if we spoke about the US and Canada Division, going into each of its components would take a lot of time and we don't break them out. There's a lot of businesses. We have an MGA, we have a technology business, we have Canada, we have the core of Marsh. There's a lot of businesses in MMA that comprise of the Division. I'm not going to really comment too much on the next couple of quarters. Don't think that we will be in the same situation that we are in the second quarter. Again, each one is different and the prior-year comparables are different. And each component of the US and Canada Division has a bigger percentage of its participation depending on which quarter. So again, I just wouldn't over-read into what happened in the second quarter as a trend or that you're going to hear a similar story as we get to the back half of the year. Yes, I wouldn't think so. Again, I don't think we have that level of granularity to know what's in a client's mind. I do believe that it's fair to say, Brexit or otherwise, that many of our clients believe that we are living in an age of risk and uncertainty, and that risk and uncertainty creates a dampening enthusiasm for projects and for investments. So that has had an impact over the last number of years, I think, on not only our growth levels but on GDP worldwide. But there was no negative or positive spike that we could actually see as a result of early-stage thoughts about Brexit. Thanks, <UNK>. I'll just say it's always funny comparing ourselves back into time. We are such a different Company than what we were back in 1988 that I am loath to create those comparisons even though we write them into our script. I would say we're better than at any time in our history. Because when I look back in 1988, if you look at total RIS it was $1.3 billion of revenue. So we are multiple times larger and more diverse geographically, line of business, quality, etc. So this is the new world. I don't set margin targets. <UNK> doesn't as well. We don't believe in them. We believe that there's something about the human brain that looks at a target as something to reach and then draw back from. So I would not put any hurdle out there as to what this business could do and how it could perform. I do know that I'm quite confident that the leading factor in how we will do over time is organic growth. And if we have good levels of organic growth, we will have good levels of margin expansion, period. If we don't have that organic growth, then all of our annual and multiyear search for efficiency ---+ obviously that never ends. We have found different ways of running this business through structure, through delayering, through technology, through better levels of client connectivity to create more ability for us to service clients on an efficient basis. And that creates a margin benefit to us go-forward. But do you have any other question, <UNK>. Okay. I think we have time for one more question. Yes, well, it's a question that I'm used to. Because when I was joining the business in 1982, I was reading articles about brokerage disintermediation that had been written in 1978 and considering: Should I actually join an industry that looks like it's going to go the way of the dodo bird. The reality is, in an increasingly complex world, the need for advice rises. These were once transactional businesses; now they are principally advisory businesses with transactional capability. Big, big difference. So I would say the broad level risk of disintermediation is quite low. That's not saying that there's not ways of creating distribution that we as a Company have to be very focused on, whether it's digital, whether it's online, whether it's worksite. There's different ways of getting to our client base, and we have to be very open to the idea. And clearly in some parts of segments I feel you'll have multichannels, right. Whether you look at motor or homeowners or maybe even small commercial, you'll end up having multichannels, which means brokers, there will be direct, there will be affinity. There will be many different avenues for clients to be satisfied. The key is: What's the client's experience. Who provides the best level of comprehensive client experience. And a little bit less about what the capital behind it is. It's more about experience. I would just end with the thought as well, because I recently took a trip to a country which was always very much a nonbroker market which is beginning to turn more and more to a brokered market. The reality is that more parts of the world have become brokered, because the terms and conditions and the pricing are better in markets in which brokers are active than in where brokers are not active. So I feel pretty comfortable that we're positioned well, but not secure in our position in the market. We have to always find ways of doing things better or else, yes, we will get disintermediated ---+ perhaps by another intermediary, but we always have to stay on our toes and do things better. I think that's it, operator, where we can end the call, because I know we're beyond our hour. I just want to thank everybody for joining us this morning. Specifically thank our clients for their support and the faith they put in us, and our colleagues for their hard work and dedication in serving our clients. Thank you very much.

2016_MMC

2018

AMPH

AMPH #Thank you, operator. Good afternoon, and welcome to Amphastar Pharmaceuticals Fourth Quarter Earnings Call. My name is <UNK> <UNK>, President of Amphastar. I'm joined today with my colleague, Bill <UNK>, CFO of Amphastar. We appreciate you joining us on the call today, and look forward to speaking with you and answering any questions you may have. I will now turn the call over to our CFO, Bill <UNK>, to discuss the fourth quarter financials. Thank you, <UNK>. Sales for the fourth quarter decreased 5% to $60.4 million from $63.5 million in the previous year's period. Sales of enoxaparin rose to $11.3 million from $8.3 million as sales of enoxaparin were depressed in the fourth quarter of 2016 during our transition of retail customers from Actavis, as we were unable to ship units for the retail market from August 2016 until the end of December 2016. Sales of epinephrine decreased to $3.7 million in the quarter from $10.7 million as we discontinued selling our vial product earlier in 2017 per the FDA's request to remove this unapproved product, which no longer is on the drug shortage list. Our insulin API business generated sales of $4.4 million, a slight decrease from the $4.7 million we reported in the fourth quarter of 2016. Gross margins improved year-over-year as we had larger inventory reserves in the fourth quarter of 2016 for enoxaparin and epinephrine vials. Selling, distribution and marketing expenses increased slightly to $1.6 million from $1.5 million. General and administrative spending decreased 14% to $9.2 million from $10.7 million, primarily due to decreased legal expenses now that we have won the jury trial. Research and development expenditures decreased 7% to $11.4 million from $12.3 million due to the timing of API expenditures for our pipeline and expenses related to Primatene inventory we purchased and expensed in 2016. The company reported net income of $1.5 million or $0.03 per share compared to last year's fourth quarter net loss of $2.7 million or $0.06 per share. The company reported adjusted net income of $4.8 million or $0.10 per share compared to an adjusted net income of approximately $500,000 or $0.01 per share on the fourth quarter of last year. Adjusted earnings exclude amortization, equity compensation and impairments. On December 31, 2017, the company had approximately $72.4 million of cash, restricted cash and short-term investments. In the fourth quarter, cash flow from operations was approximately $9.8 million and was positive for the 15th quarter in a row. Let me now review a few of the financial assumptions that we will be using as we look forward to 2018. We expect sales growth will be driven by new products, including Neostigmine, Medroxyprogesterone vials and prefilled syringes, which we recently launched as well as Nitroprusside, which we now plan to launch in the second quarter. Each of these new launches will take a few months to ramp up to normalized sales levels. The consensus sales estimate for 2018 is over $330 million, which is an obtainable goal given certain assumptions. The recently approved products get us a good portion of the way there. We will also need to get meaningful sales from at least 2 out of 3 possible big approvals in 2018, which include 2 large ANDAs and Primatene Mist. We expect gross margins to increase as we were able to launch new products, which we believe we will be able to sell at higher average margins. We expect incremental G&A spending increases related to compliance costs and legal expenses associated with Paragraph IV patent challenges and our antitrust trial. We expect research and development spending will increase in both dollar terms and as a percentage of sales as we are planning to begin several expensive clinical trials for our inhalation and insulin pipeline. I will now turn the call back over to <UNK>. Thanks, Bill. 2017 was a great year for the company in which we had positive ongoing communications with the FD<UNK> The agency provided constructive feedback and was very responsive. We are encouraged by the agency\ So to start off with on the Depo-Provera generic margins. Right now, this will be well above where we're ---+ our corporate average margin right now. And the good thing is that this should also be one of our top 5 selling products, we hope, within a year or so. So it's going to have not just a high-percentage margin but also deliver real gross profits to the company. And with respect to the second question, expectation regarding additional entrants, that is always possible. This product very much meets our business strategy of technical barriers to entry, not just in terms of getting the product approved but also the manufacturing process. So as you see, there's only 1 generic currently on the market. That's Teva. There is possibility of others, but we are confident that this is a complicated product with limited competition. And then finally, for the Nitroprusside, as Bill said in his prepared remarks, we're targeting the second quarter to launch that. We originally had planned for the first quarter, but as I was stating in my remarks, we're in the process of launching our MPA, both the prefilled syringe and the vials. And just as a note, although Teva is in the market, they're only in the market for the Depo-Provera vial. There is no approval of any generic with prefilled syringe. So we've got a lot of production on those products, so we're prioritizing that due to the great revenue potential and profit. And we'll push Nitroprusside to the second quarter. That one is a highly competitive landscape. I believe we're the seventh entrant into that market, and that's why we're putting less priority on it. Well, at this point, we're not giving any specific dates. They are varying throughout the year. Some could be soon. Let's put it that way. Yes. There really hasn't been a change there unless you're comparing from a year ago. And a year ago, Actavis was still selling, they had a lot of inventory so they distributed from ---+ throughout the entire fourth quarter of 2016. So we really didn't get any units shipped into the retail market. There are still units there that we're selling through the wholesalers in the earlier parts of the year. So there hasn't really ---+ to us, where we see it, there hasn't been any change in customer and competitor dynamics really on the large scale in the retail market. So our sales have been, relatively, unit-wise, relatively flat. So in terms of the filings, we still are on target to file 3 to 4 ANDAs this year. One of those being an inhalation ANDA, and so that's on track right now. In addition, when we talk about products on file, so in my prepared remarks, I said we currently have 3 products targeting a market of over $500 million. We always leave out, for purposes of these disclosures, our unapproved products. And so as you may know, last year, we got our Sodium Bicarbonate approved. So that took our unapproved down. Originally we had 7 unapproved products. As Bill stated, the epinephrine vial went off the market, which left 6. We then got approval on Sodium Bicarbonate. That leaves 5 unapproved products. And currently, we do have 3 ANDAs filed on those unapproved products, and we intend to file the remaining this year as well. And on those, there will be an NDA as well. Well, I feel we've had that prefiling dialogue. The advice letter that they just gave to us provided some recommendations that we do and that we make sure happen in the study before resubmitting. And it's all very reasonable and feasible. So we think it's straightforward. If an issue were to occur, then perhaps we would have a follow-up with the agency. But at this point, we pretty much have the green light, assuming we follow those recommendations, which are straightforward, to resubmit shortly after the study. So I don't think at this point, we have any pre-NDA meeting, so to speak, planned; we ---+ it's pretty straightforward at this point. We've narrowed it down to a very ---+ 1 issue, and we think we've got it under control. So we believe this will be a good study. If the results come out the way we expect them to be, we'll package it up, and we plan on resubmitting shortly thereafter. Yes. So the clinical trial spending, we really expect to ramp up throughout the year. And as <UNK> mentioned with 3 to 4 filings, and also a couple other filings that are on the [b] for our unapproved products, our filing fees to the FDA will be going up as well, and at least one of those is going to be an ND<UNK> So we're going to have a significantly more clinical trial spending and a lot more filing fees and FDA fees this year. So I would expect the R&D [spend] to especially grow by the end of the year. And also the ---+ some of the legal spend probably will also get larger later in the year as I alluded to some potential Paragraph IV challenges. Yes, thanks, <UNK>. This is <UNK>. I'll answer the pipeline question. So we have not had ---+ we have not raised the resubmission class with the agency. As a company, we still believe that this is a very narrow issue that could deserve a 2-month review as opposed to a 6-month. We have not had that discussion. It may be worth a question prior to filing, but at this point, the agency has not indicated which class it would be. But we maintain that we think it's a straightforward review issue. And as far as the inventory goes, we made that in November and December of '16, so it's been well over a year now. Highly unlikely that we could use any of the finished goods that we produced at that time and be able to sell those. However, at the time, we also did buy and expense at the time pumps, valves and canisters, and we also have API on hand, which has no book value as of right now either. So we have a significant amount of materials that will have an initial cost of 0 when we start selling the product. Sure, sure. So yes, we're still in the process of modifying the device, and we showed the prototype to the agency when we met them in person in November. They seemed to like it. We've received some recommendations since that point. Some of the recommendations were around the human factor study. So we'll do another human factor study once we have this easier-to-use device, and we think the study will be much easier given there will be no assembly required. That being said, I do not see a resubmission in 2018. We're still finalizing the prototype of the device. We're still collecting data, real-world data, from hospitals regarding the volumes in pediatric populations. We'll likely provide that information to the agency in the second quarter. Once we come to an agreement on the volume and the device development is complete, we then need to do stability. As I said on the last call, in the November meeting, they made ---+ they emphasized the point that they're willing to work with us on stability and perhaps accelerate that as an exception given the importance of the product. But that being said, having to put on stability even if they decreased it 6 months, 3 months, given all the development in the 4 issues that we're addressing in the CRL, I think it's more likely to see a submission in 2019. Sure. So certainly, it could go a long way financing a lot of our CapEx and clinical trials that we have planned over the next couple of years. That would certainly be a good thing. And with more cash on the balance sheet, then we could be more likely to make a bid for something all cash if we were looking at some business development opportunities. But right now, as we've always said, our focus is on our R&D pipeline. So if we find a good business development activity, a nice acquisition that will fit in well with us, then we'll certainly go after that. But otherwise, we will definitely ---+ our first focus is the R&D pipeline. And we could also potentially return some of the cash to shareholders in some form or another, too, as well. Yes, it's a good question, and we've discussed this in the past. I mean, for a lot of products like this, we try to be secretive for competitive reasons. A lot of times, the brand will do things to slow the generic down. That being said, for some of our inhalation products, there are Paragraph IVs involved. So the most likely way that this will ultimately be disclosed is when the Paragraph IV is filed and we're sued on the product. Yes, sure. All of these products that you mention are very big products with very big markets. We certainly do ---+ we do have limited resources at the company. And as we look to prioritize products, one of the things that goes into our calculus is what do we see as our market potential. And the market potential, certainly, a function of people that we know are in it and if we know that there are people ahead of us on something, well, that might make that product a lesser priority, and it might move other products that have similar characteristics up to a higher level. So that's something to keep in mind as ---+ that we keep in mind when we're doing this because our thoughts are that we don't ---+ and with 6 inhalation products, they're going to have clinical trials that range between $10 million and $20 million each. Three of those are partnered with another company where we'll share the costs with that other company for the clinical. But we don't want to run all of those at once, sir, and we also have limited amounts of R&D capabilities at any one time. So when we prioritize products, is how I would take a look at that. And just as a follow-up, as you know, a big part of our business strategy is to focus on technically challenging products where approvals are difficult and there's barriers to entry. So especially in the inhalation market, to this day, there is no generic HFA out there. And so the thinking is that although there may be some companies ahead of us in some of the inhalation products, these are extremely large markets. And as Bill said, we'll continue to monitor to see approvals, but sometimes, filings don't worry us as much because we know how complicated these products are. Sure. So the already approved products get us more than halfway there, we believe. So ---+ and the remainder will be from products that have to be approved during the year. Yes. So as I mentioned, we need to get ---+ in order to hit that goal, which we believe is obtainable, we'd have to get 2 out of 3 large approvals, and those large approvals include 2 ANDAs and the third one's Primatene. So if we get 2 out of 3 of those reasonably earlier or in time during the year to get meaningful sales from those products, then we believe that, that goal is obtainable. Yes. So if you take a look at, I'd say, the 6-month data here, and then some of that ---+ yes, so if you take a look at the last 6 months as opposed to the last quarter or the third quarter, that's a better way to look at it. Yes. Probably $8 million, maybe a little higher. Yes, good question. So there's a bunch of onetime things that really went into the fourth quarter. The biggest single one was that there was a significant number of options exercised in the quarter, which led to a tax deduction base for the company in the quarter as we had more expense for tax than we did for book. Second thing is there were some ---+ we had a couple returned or provisioned items that were beneficial to us that we didn't book, until we had booked ---+ filed the return in October. And there were also ---+ we did a tax ---+ a change of methodology for a certain thing, which led to a onetime increase. It was more of a timing issue there, but it led to a benefit in the fourth quarter as well. As far as the going forward rate, 21% is too low because we do operate in tax ---+ high tax states as well. So ---+ and not all of our benefit will be ---+ we will be able to take really in the first year. So I think more of a 25% to 28% tax rate for 2018 is the right number and then probably going forward, closer to 25% after that. Yes. I think we are doing it the way that we would like to. We have limited resources as a company our size. And we are ---+ we do want to stay profitable as a company. So we've sort of prioritized the products based on the revenue and profit potential. We can't run clinical trials in parallel for all of the products, but we have a good 5-year plan for the pipeline, and we are executing on it. Yes, good questions. So in terms of the sales and marketing, we are planning a multimillion dollar marketing spend at launch. And we did meet with a firm last year. And we have a good plan in place. Television ads are extremely expensive. I mean, you could spend $100 million on something like that. So most of it will be online, which seems to have a lot of good pull these days. And of course, the retailers will be promoting it as well. This brings in a lot of good foot traffic for the retailers. And they've been excited about this product for several years and awaiting the approval. So yes, we definitely need to let people know it's back, and we'll be spending millions of dollars at launch, mostly on online advertising and, obviously, in mailers for the regions, for out of the retailers. In 2010, that was our peak sales for the CFC product. That was $65 million in peak sales. And looking at what's out there, OTC right now, there's a number of nebulizers that are on the market through the monograph. These are epinephrine products that are priced quite high. And so based on their pricing as well as the improvements with our product ---+ our product used to be in glass, which tended to break and had no dose indicator. This new one, it's a patented product, it's aluminum, it has a dose indicator. Not that we purposely did it this way, but because there is an indicator, there's less headspace. So the product actually does not have as many doses as the CFC version, which will lead to most likely more purchases. So we think it will take some time. I think getting it on the shelf, no problem, but then having people actually purchase it and having the retailers reorder, that will take some time. We do believe in the long run that we will exceed the $65 million in peak sales. Sure. It's a very good question. And we've had a conversation recently with some of our FDA consultants along this line and had some controlled correspondence with the agency as well. And there seems to be a push by the agency to try to get ANDAs out there that are interchangeable. Although it's not within the FDA's purview, but we all know that pricing has been on the radar lately. And I think they're coming about it in a good way in terms of saying, look, if we can get more competition, that's what brings prices down. And interchangeability would be an important aspect of that. So in some of our controlled correspondence, we have been encouraged that we can continue with the ANDA route. And we do believe, and we've heard that there will be guidance coming out shortly that will actually allow for interchangeable ANDAs even in circumstances where the device is slightly different as long as you can do the bridging studies and show the safety and efficacy. So in essence, if you show that A equals B equals C, you can still potentially get the interchangeability with your product, albeit slightly different because as we all know, the brands are constantly making slight changes to try to delay generics. And it seems the FDA is aware of this gaming of the system, and they seem to be working with generic companies to help combat that. Sure. So first of all, on the cash, we ---+ I don't have the number in front of me for CapEx, but we did have a pretty large number for CapEx in the quarter, and we did have about $6 million of share repurchases in the quarter. So that's where the cash went. And we hope to have our 10-K out Wednesday morning, so all the final numbers will be in that. So that answers that question. As far as acquisitions go, I will say, with more cash on the balance sheet, we might be a little more attuned to potentially making an acquisition. But really, the second part of my comments is the right part to think about us for our company, which is we're an R&D-focused and driven company, and that's where we believe our core strength is. So that's definitely going to be the priority. Thank you, operator. So this concludes our call. I hope everyone has a great day.

2018_AMPH

2016

UNFI

UNFI #If you're talking about the fresh perimeter business, where UNFI has a full product offering in organic produce, fresh produce, bakery, deli, specialty cheese, protein, et cetera. I think that we have the most built-out network closest to the consumer, regardless of whether the customer is mass, conventional, independent, et cetera. And so I think we're optimistic that there's going to continue to be business wins. We've already had a few. And quite frankly, I would prefer that they tend to be smaller wins that gain sequential improvement quarter over quarter, year over year. But we are also in front of a lot of the big conventional or other retailers that we feel should be using some, or all, of the services that we offer. When we're at a point where any of those need to be announced, you will be the first to know. We've been working hard at building the infrastructure and having the technology and the resources and the intellectual capital to be a true national provider of cold chain. It's a lot different than handling chips. And we've put a lot of work into it, and feel we're in a great place to start taking advantage of that network. No, I don't think there was anything in the quarter. I think that the gross margin was, as we discussed, primarily driven by FX. But some improvements in our trade spend, some seasonality, associated with it. Listen, our strategy is to get better-for-you products into as many consumers' hands as we possibly can, regardless of the channel and regardless of the mechanism by which that product gets ultimately to the consumer. So whether it's click and collect, direct-to-consumer, direct-to-store, we want to make it easy for a retailer to use UNFI in order to make that happen. I think that's the best explanation I can give you. Sure. Not going to give you specifics around how we see the actual numbers playing out, but I will provide you this explanation. The reason we bought Nor-Cal is because they were 70% conventional produce, 30% organic. We really needed to have a conventional produce offering. As you might imagine, at Albert's, as the largest distributor of organic produce across the country, we've been competing pretty hard with conventional distributors who have started to take on organic over the last four or five years. And so we felt as though conventional was a very important part of our strategy. Today, we only have it in half of California. Nor-Cal serves as our base to move conventional throughout every Albert's distribution center. Our expectation would be a significant amount of growth from Nor-Cal in Albert's as we move conventional into the Albert's DCs. The same thing applies to Haddon. We had specialty gourmet ethnic. We just didn't have it in all of the right geographies. And I would say that I don't think we really fully understood the service portion of that business in terms of the quality and the type of the individual that was calling on the store on a weekly basis to actually do the work around order entry, receipt, reset, et cetera. And so, with Haddon, we now have full coverage in the eastern half of the US. And we will begin rapidly deploying the Haddon model across most our major DCs and urban markets over the next year. So we would expect a fairly significant amount of growth associated with both conventional produce and specialty. We redid our credit facility. We are starting to throw off more cash than we've ever thrown off before. We have the capacity, in certain markets, to take on some new business. So I think that we're going to continue to be opportunistic. Despite what's happened in the last year or 18 months, we still view ourselves as a growth Company. And so, that's where we see using our cash. That's where we see using our balance sheet. Now, having done three in the last couple months, it would be nice if we could breathe a bit. But sometimes you don't have that luxury. So I guess it's a long way of saying that we will continue to be opportunistic when it comes to M&A. I think it's hard to answer that at this point in the quarter and the year, Andy. And I would say I think we'll be in a much better position to give you more color around that in our guidance for 2017. I'd say directionally that's right. But again, we'll get into more confirmation of that, or discussion of that, in September. The 90-basis-points decline versus second quarter down to 1.25 for inflation, there are elements of that. As you know, meat deflation; cheese has been flat to deflationary over time. And those are driving the numbers down for sure. It depends on the perishable. Generally, commodity proteins would carry no trades. Any processed products, delis and food service, bakery would probably have some. It's harder to increase your gross margin with no inflation because we would typically buy into rising markets. So it's largely grocery. It can be frozen; it can be dry; center store---+ but certainly, index to grocery versus perishable. Yes, Andy, we've pointed to continued positive cash flow as we move forward to the end of the year. I put the range out there at $200 million to $220 million. We anticipate that we'll continue to be where we've been year-to-date on CapEx, so we won't see it there. But beyond that, it really comes down to our performance on our working capital metrics. And we are focusing there. We're trying to improve our working capital. We've done a nice job of that. And to the extent we can do that, that can improve our number going forward, too. The cash generation for the business is strong. And you're absolutely right that Q4 has been a good quarter for UNFI historically. And we assume it will be nice, solid, positive quarter again for UNFI. We expected that we would get this question. But I think what we've provided was the aggregated acquisition numbers in the quarter and in the anticipated for the year. And we'll provide a lot more of the color in 2017. Keep in mind that it's going to be getting harder and harder to report them separately as we integrate these businesses into our business systems. Global will be integrated into our Albert's system relatively soon. Nor-Cal will be integrated into our business systems certainly within the next ---+ third quarter next year. And then Haddon will be integrated into our systems around this time next year. A lot of the business is going to move around as we do this. So it's going to get a little bit clunky to get to that data, but we'll try in September. I think that our numbers have been relatively flat. They're not getting consistently better. They're not getting consistently worse. I'm not sure that it's choppy, per se; but a little yawny. But given the initiatives that we have in fresh and produce and specialty, those are the things that get us pretty jacked about moving forward. I'm not sure that we're going to provide that. We haven't thought about that actually. I'm hesitant to give the data because, quite frankly, I don't know the exact data off the top of my head. And I'm pretty sure nobody else does as well. So we're going to have to table that one and think about how we want to deal with that question. We outlined some of the costs that are included in the numbers for the Gilroy startup. The fuel is an interesting one because while we lose the fuel surcharge, which affects our gross margin, we get back a benefit down in operating expense from the reduction in fuel expense. So we've seen nice pick up there. And the net fuel impact overall then for us is positive. We have done some price locking to do some hedging. Some of that is in the money; some of it's out of the money. But it's certainly been a tailwind for us in the quarter relative to last year and in the quarter relative to last quarter. Well, is your question what is our plan regarding the free cash that we are creating. No. Definitely not. Thank you very much for joining us this evening. Have a terrific summer, and we'll talk to you in September.

2016_UNFI

2016

DRH

DRH #Thank you, operator. Good morning, everyone, and welcome to DiamondRock's fourth-quarter 2015 earnings call and webcast. Before we begin, I would like to remind participants that many of our comments today are considered forward-looking statements under federal securities law and may not be historical fact. They may not be updated in the future. These statements are subject to risks and uncertainties as described in the Company's SEC filings. In addition, as management discusses certain non-GAAP financial measures, it may be helpful to review the reconciliations to GAAP set forth in our earnings press release. With me on today's call is <UNK> <UNK>, our President and Chief Executive Officer; <UNK> <UNK>, our Chief Financial Officer; <UNK> <UNK>, our Chief Operating Officer, and Troy Furbay, our Chief Investment Officer. This morning, <UNK> will provide a brief overview of our fourth-quarter results, as well as discuss the Company's outlook for 2016. <UNK> will then provide greater detail on our fourth-quarter performance and discuss our recent capital markets activities. Following their remarks, we will open the line for questions. With that, I will now turn the call over to <UNK>. Thanks, <UNK>. Let me start by thanking everyone on this call for joining us today. We note that this is a time of market dislocation, and there are questions about the outlook generally for the industry. That said, based on a careful review of the data, our current outlook on lodging fundamentals remains constructive, despite recent moderation in transient demand. The fourth-quarter numbers for the industry remain solid by any historical standard with industry RevPAR growth at 4.8%, bringing full-year 2015 RevPAR growth to 6.3%, which is well above the long-term average growth rate of just over 3%. On the supply side of the equation, new hotel supply last year registered only 1.1% growth, which is about half the long-term average. While different markets certainly diverged in results last year, the overall lodge industry had a good year. So where are fundamentals going now. As we look forward, we closely monitor several key economic indicators that traditionally correlate with hotel demand. In particular, we are watching trends in employment, consumer confidence, employments, GDP, and corporate profits. The first three of those indicators are positive, and the last two are less encouraging. Overall, the most likely case in our view is for moderating industry RevPAR growth in 2016, probably with a baseline change around 3% to 5%. However, we do expect the top 25 markets collectively to underperform the national average in 2016 because they have a little more supply to contend with. Now let's turn to DiamondRock. Our portfolio performed very much in line with our expectations for the fourth quarter. Pro forma RevPAR increased 3.1%, bringing our full-year portfolio RevPAR growth to 4.7%. Excluding The Gwen, which experienced rebranding disruption, our full-year portfolio RevPAR was 5.3%, in line with the 5% RevPAR growth for upper upscale hotels in the top 25 markets. Moreover, in 2015, we were able to increase adjusted EBITDA by almost 13% to $265.4 million, which was within our original guidance provided to you one year ago today. For the fourth quarter, group demand rebounded and led the portfolio's performance. The strong group revenue growth of 6.3% helped to offset a slowdown in business transient revenue. Leisure demand, the proverbial third leg of the lodging demand stool, was solid with leisure revenues growing almost 4%. The true highlight for the Company in the fourth quarter was the continued successful implementation of DiamondRock's asset management best practices. Our team was very efficient in driving bottom-line profitability as we achieved impressive house profit flow through of 73% and profit margin growth of 114 basis points during the quarter. The quarter's profit margin results capped off a strong year for profitability with portfolio pro forma hotel adjusted EBITDA margins of 31.2%, a record for DiamondRock and a 113-basis-point increase from the prior year. We are very pleased with these results, as well as the Company's overall execution on cost controls. Now let me turn it over to <UNK> to discuss our fourth-quarter results and our capital markets activities in more details. <UNK>. Thanks, <UNK>. Before discussing our fourth-quarter results, please note that our reported RevPAR and margin data are presented on a pro forma basis to include the Shorebreak Hotel and the Sheraton Suites Key West as if they were owed for all periods presented. Our hotels performed as we expected in the fourth quarter. Despite a difficult New York market and choppy business transient demand, our hotels outperformed their markets during the quarter, gaining 80 basis points of market share on 3.1% RevPAR growth. The RevPAR growth was driven by increases in both average rate and occupancies, up 1% and 1.6% percentage points, respectively. It is important to note that the 4.3% total revenue growth exceeded our RevPAR growth, powered by the success of the new rooms at the Boston Hilton and successful strategies to drive food and beverage and other revenues. Our profit flow through in the fourth quarter was excellent as our asset management initiatives drove our 73% flow through. Consequently, hotel adjusted EBITDA margin expanded 114 basis points. For the full year, the Company reported pro forma RevPAR growth of 4.7%, driven by a 3.5% increase in the average rate and 0.9 percentage point increase in occupancy. Full-year hotel adjusted EBITDA margins expanded by 113 basis points. Fourth-quarter demand was strong for both group and leisure. Group revenue growth led all segments in the portfolio with 6.3% growth. This represents a big turnaround from the 7.2% third-quarter decline. Group was led by the Boston Westin, the Minneapolis Hilton, and the San Diego Westin with group revenue growth of 28%, 50% and 41%, respectively. The recent trend of strong short-term booking activity continued with $3 million of in the quarter for the quarter group revenues, a 10% increase compared to the same time last year. In addition, during the fourth quarter, we booked $22.7 million in 2016 group revenues, which was over 15% more than was booked last year. Moreover, we experienced strong growth in the leisure transient and contract segments with combined revenues growing approximately 6%, consistent with our expectations. The growth was primarily driven by approximately 7% higher demand. The segment growth was driven by our Boston hotels, the San Diego Westin, and the Washington DC Westin. Finally, as expected, our business segment was the only challenging segment during the fourth quarter with revenue declining 1.6%, which was the result of a soft corporate demand environment as evidenced by the anemic fourth-quarter GDP growth. Fourth-quarter food and beverage results exceeded our expectations once again, achieving 6.3% top-line growth. Coupled with tight cost controls, this resulted in 270 basis points of margin expansion and 77% profit flow-through. Banquet outperformance was the primary driver in F&B. Banquet and catering revenues increased more than 10%, and margins grew over 200 basis points. In addition, group spend on F&B and audiovisual increased over 11% during the quarter. We believe this elevated spending by meeting planners is a sign of growing group confidence. Other bright spots for DiamondRock in the quarter are the results from our recent ROI projects. I will mention just two. The new rooms at the Boston Hilton generated a $66 rate premium in the quarter, which continue to exceed our expectations. At the Chicago Marriott, the first phase of renovated rooms from last winter commanded a $30 rate premium, which exceeded expectations and bodes well for the additional 460 rooms being upgraded this winter. However, our fourth-quarter results were held back by a rebranding disruption at The Gwen Chicago and our New York City hotels. Excluding these hotels, our fourth-quarter portfolio RevPAR growth would have been 6% and hotel adjusted EBITDA margins would have expanded 376 basis points. Let me provide a little more detail on those two areas. First, as expected, the brand transition disruption at The Gwen negatively impacted the fourth quarter. The hotel is starting to gain traction with corporate accounts, and we feel good about the stabilized prospects for the hotel. The renovation will be transformative and position the hotel among the best in Chicago. The arrival area, lobby and restaurant are being renovated this winter and are scheduled to reopen in May. Second, while demand in New York City was solid, increasing supply led to 2.8% RevPAR contraction in the upper upscale luxury segment. We are proud that our New York hotels outperformed in the fourth quarter by approximately 130 basis points. Before turning the call back over to <UNK>, I would like to touch on our balance sheet. Prudent balance sheet management and conservative leverage have been a cornerstone of DiamondRock's strategy for over a decade. In 2015, we were able to further bolster our balance sheet by reducing borrowing costs, extending and staggering our maturity schedule, and expanding our pool of unencumbered hotels. During 2015, we successfully completed $355 million of new financings, which contributed to three big advantages for DiamondRock. First, the interest rates on the new loans are approximately 150 basis points below the maturing rates. With this, we have opportunistically lowered our average borrowing costs from 5.6% in 2011 to 4.1% today, which has reduced our annual interest expense by over $14 million or $0.07 per share. Second, we have carefully constructed one of the best maturity profiles among our lodging REIT peers with an average maturity of approximately seven years and only one small debt maturity in 2016. Third, we were able to move financings among hotels to increase the number of unencumbered hotels. Our unencumbered pool now stands at 18 of our 29 hotels. These unencumbered hotels alone generated $157.6 million of hotel adjusted EBITDA during 2015. These free and clear hotels form a strong backbone of the Company's valuation. Even with this strong capital structure, we plan to further improve our balance sheet in 2016 by, one, addressing our one maturity; two, potentially recasting and increasing our corporate revolver; and, three, evaluating dispositions of non-core assets. We will provide an update on the progress of these initiatives on our next call. I will now turn the call back over to <UNK>. Thanks, <UNK>. Now I will turn to a more detailed discussion of our outlook for 2016. As I mentioned at the top of this call, we expect industry to have RevPAR growth of 3% to 5% with the top 25 markets underperforming those numbers. For DiamondRock, we expect our portfolio to generate full-year 2016 RevPAR growth in the range of 2% to 4%. We expect our RevPAR growth to be below the industry average because of our concentration in top 25 markets, particularly the New York and Chicago markets. Let me talk about those markets. New York ---+ New York is expected to be challenging in 2016 because of new hotel supply, probably around 6.5% growth. Our guidance supplies New York market RevPAR as flat to marginally negative in 2016. We do expect our hotels to continue to outperform the market by approximately 100 basis points in 2016. Chicago ---+ Chicago will be challenged during the first half of 2016 because of the citywide group calendar, which is down mid teens in room nights and particularly weak early in the year. However, our Chicago Marriott is likely to outperform the market in 2016. 2016 group pace at the Chicago Marriott is up close to 3% with over 75% of the rooms already booked. After getting through the soft first quarter, group pace for the last three quarters of the year is up 8.6%, which should significantly outperform the market. Our Chicago results will also be impacted by the transition disruption at The Gwen Chicago, which will continue through the first half of 2016, as a result of the hotel ramping up during a period with low citywide activity. We do expect strong growth at The Gwen in the back half of the year. While our full-year RevPAR guidance is for 2% to 4% growth, we do expect our first-quarter RevPAR to be modestly negative, driven by a holiday shift and the spread of citywide events in our markets. Easter comes into the first quarter this year and is expected to negatively impact our March results but benefit our April results. Group activity for the first quarter is weak in our three largest group markets of Chicago, Boston and Minneapolis. Accordingly, first-quarter group revenues are expected to be down in the mid-single digits. However, group is expected to significantly improve after the first quarter. Our group pace is up 4.5% for the second through fourth quarters. Now, based on our full-year RevPAR growth expectations, we are guiding as follows. Full-year adjusted corporate EBITDA is expected to range from $265 million to $278 million, and full-year adjusted FFO per share is expected to range from $1.04 to $1.09. Lastly, before we open up for questions, let me address our capital allocation strategy as we navigate the current capital markets. Since the beginning of the year, we have continued to see a further disconnect between hotel values and lodging stock valuations. We firmly believe that we are currently trading a significant discount to NAV into replacement costs. As a result, we are carefully evaluating opportunities to create shareholder value by strategically selling non-core assets and redeploying those proceeds into accretive share repurchases. As you may recall, our Board of Directors authorized a $150 million share repurchase program last quarter. Note that we have been in a blackout period since the end of our last fiscal quarter on December 31 and have not yet repurchased any shares under this program to date. As I mentioned, our preferred source of funding share repurchases will be from proceeds of asset sales. The transaction market stay is still active, and we are exploring several potential candidates. As you know, it is our policy not to comment on deals until they have closed. So to sum up, in 2016, you should expect DiamondRock to remain laser focused on operations and to actively explore value creation opportunities through capital allocation. With that, we would now be happy to answer any questions that you may have. Thanks, <UNK>. This is <UNK>. I Think we, as you know, didn't give specific margin guidance for 2016 because of the sensitivity of those numbers relative to where the relative RevPAR is. I will give you some color on 2016 operating costs where we expect to increase anywhere from 3% to slightly over 3% in 2016, which compares to about, call it, 3.5% in 2015. And so within those numbers, we believe our operating costs will continue to come in below that at both food and beverage, as well as rooms and support costs, offset by slightly higher property taxes, as well as ramping franchise fees, as well as management fees within the portfolio. But, overall, we expect our costs to go up roughly, call it, 3% to slightly more than 3% in 2016. When you look at how we performed in 2015, we were able to get strong margin expansion in a relatively moderate RevPAR growth environment. We would hope that we would be able to continue to do that, but we just ---+ as we look into 2016, we were not able to provide specific numbers around that guidance. Hey, <UNK>. This is <UNK>. That is a great question. Obviously, we're looking at a number of dispositions right now. I think once the dispositions we have greater certainty that we think they are going to close, we are going to be more apt, obviously, to buy. I think to lever up the Company to repurchase the share price has to be even lower than it would be if we were just recycling the capital from dispositions. Yes, <UNK>, it really depends on the assets. So if you look at it, San Francisco and New York probably have the lowest cap rates and the most amount of capital still chasing those markets. So we would expect the largest disconnect in those markets compared to where the stock is trading today. So our strategy is a little bit of a barbell strategy, which is to look at sometimes where the largest gap is, but also it provides an opportunity to accretively potentially recycle some of what we call our non-core assets, our lowest RevPAR assets, and upgrade the quality of the Company and redeploy those into share repurchases and come out on the other side as the better company. So we are looking at it ---+ kind of think about the barbell, both sides of that equation create value for our shareholders. <UNK>. This is <UNK> <UNK>. Good morning. We looked at several ---+ several of our hotels we looked at leasing out our restaurants. More specifically, at our Westin Fort Lauderdale, we terminated a franchise agreement with Shula's and brought that operation in-house. We saved over $400,000 in franchise fees alone. At our Charleston Renaissance, we leased out a restaurant. We had about 400 basis points of margin improvement through that as well. At our Chicago Marriott, we added a grab-and-go concept, which has saved several hundred basis points as well. And we see that continuing because that started ---+ we haven't hit the full ramp-up there. But as we look at the portfolio throughout 2016, we are going to look at other grab-and-go opportunities with our operating partners. So we believe there is additional upside there. That would be correct. In simplest terms, we expect our Chicago assets to outperform the Chicago market, which ---+ and, again, we expect the Chicago market to be a little bit below the industry average. But we will probably come within the industry average in Chicago. So it is really New York that will hold us back a little bit, although we expect to outperform by about 100 basis points there. In simplest terms, figure New York is holding back our overall RevPAR guidance in 2016 by about 100 basis points. Yes. It is a great question. It is one we have had a lot of internal dialogue on. One of the things DiamondRock has always prided itself is having the simplest capital structure and simplest balance sheet in the industry. And so while joint ventures may be interesting, I think our bias is towards simplicity for our investors and to understand the Company. It is certainly an option. If the cost of capital is better for our shareholders, it is something we are going to look at. I think our preference ---+ and not exclusionary, but our preference would be a wholesale and to redeploy those capital ---+ that capital back into the shares. Yes. So I consider those different than joint ventures that are relatively simple to execute, simple for our investors to understand. We are looking at some retail potentially, and we are looking at some ground lease options, although it does come with complexity. So we are evaluating that versus wholesale dispositions of the assets and trying to figure out the best way to create value. The way we talked about with the board, one, the $150 million ---+ we meet with our board quarterly, so we can always change it or change it in between the quarter if that is appropriate, given the change in circumstance. But the way we think about the share repurchases, there is a price we want to buy back our stock if we sell an asset, and there is a lower price we would buy back our stock if we were just using incremental leverage. So we always want to be prepared for both of those, but we have kind of a different target number depending on how we are funding the repurchase. That is absolutely correct. We are working on with our hotel operators to further push this opportunity. We think it needs to be further examined, and they are listening. It is just taking a little bit of time, but, as you mentioned, one of our partners who is tied up really isn't focused on that particular case right now. But, overall, Hilton has implemented a $50 cancellation fee. They are beta testing that, which is great to see. We haven't heard what the results are of yet, but throughout the ownership community, there is support for adding cancellation fees. So I think this will be further expanded upon in 2016 and into 2017. <UNK>, there is always some level of disruption when you have a portfolio of 11,000 rooms, but we don't have any material disruption that is different than last year in the 2016 numbers. Yes. So a lot of the work ---+ the advantage of having some seasonal properties, a lot of our work is happening in markets like Chicago where it is very easy to do CapEx work in January, February, without having any disruption at all. Another example would be the Vail Marriott where we plan to do a Rooms Redux. You can do that in the shoulder season, again, with very little disruption. We probably run 10% in November, for instance, at the Vail Marriott. So we are able to manage it. The properties that always cause us the most problems with disruption on CapEx is the ones that run 85% or 90% 12 months of the year, like the New York assets. So we don't have any of those under the knife this year. Sure. This is <UNK>. Group has continually ---+ to impress us with the short-term nature of it. In the fourth quarter, our production went from ---+ We produced during the fourth quarter ---+ sorry, I will hop in. We produced 10% more in the quarter for the quarter bookings in the fourth quarter, and we produced 15% more 2016 bookings during the fourth quarter, which were all a continuation of recent trends. I think, when you step back and look at our 2016 pace, our pace has actually continued to accelerate throughout 2015 into 2016, and that is despite, frankly, having some difficult citywide activity in our three big group markets, which is Minneapolis, Chicago and Boston. And so going through each of those markets, Minneapolis ---+ our pace for that hotel is roughly flat year over year in a city that, frankly, we expect to have a challenge citywide activity mostly because there is ---+ on the surface, there is stuff that comes out of the CBD would indicate stronger citywide activity, but a lot of that is related to the Ryder Cup, which is in the suburbs, which we don't believe is going to impact the city and our hotel. And so flat group pace for the Minneapolis. Hilton is actually pretty strong. The most powerful story for us in 2016 is the Chicago Marriott that <UNK> mentioned on the prepared remarks, where the first quarter is going to be very challenging in Chicago, but our pace is up 3% for the entire year and over 8.5% for the quarters two through four. And so that is powerful. And then the third is the Boston Westin where our pace is negative because the citywide activity in Boston has shifted to [Hines] versus the [BCDC]. However, we still feel comfortable with our outlook for the Boston Westin because we believe, with that submarket continuing to prosper, that we will be able to replace a lot of that group with higher rated transient business. <UNK>, this is <UNK>. At the end of Key West, we had a management transition, and our new leadership has corrected the sales efforts, which is proving very effective in Q1. So we feel very, very good about that. There was a softness in the market in October, especially during Fantasy Fest, but overall we continue to see strong results. I was looking at the numbers this morning and feel very good about where the market is heading down. <UNK>, I guess we are in discussions with some assets now, so we don't want to provide too much color, perhaps, on some of that. I would say on the things that we have looked at, the activity in CBD topped top five markets remains incredibly active with a lot of different types of capital chasing it, kind of replacing some people that have been sidelined with kind of new entrants. What we are seeing and what I will call a non-core or non-top five CBDs is that there is still demand, but where we might have expected eight to 12 bids, there is four or five bids. So that has been the more shift in the marketplace there. It has increased. I mean, I think if we looked at the fourth quarter, the stock started trading ---+ the whole sector started trading down. We are relatively constructive on fundamentals, and at the beginning of the year, I think we were uncertain whether there would be a rebound in a kind of appetite or whether there was going to be a continued risk-off perspective from the investment community. And what we clearly experienced year to date is a risk-off kind of environment where the stocks have traded lower. So, obviously, the arbitrage is greater, and that strategically makes it easier for us to probably create value by selling some assets and repurchasing stock given the trends in the stock prices year to date. Sure, <UNK>. It is <UNK>. We are not seeing an overly large increase in cancellations quarter over quarter, but, again, as the owner community is heavily involved working with their operators, we do see this changing. Our New York assets, we have a 48-hour cancellation, and Marriott is coming out with a 24-hour cancellation throughout their whole portfolio. So we see this as an increasing opportunity for us. In terms of group, a lot of our groups ---+ if there is a group cancellation, the group cancellation clauses are in place. So we are able to get attrition revenue. We saw a slight increase in attrition revenue during Q4, but overall nothing of overly concern to us. Sure, <UNK>. That were a revenue management change at our two Courtyards, and we have really been working in partnership with Marriott on those two hotels. We have a great revenue manager leader that has now started as of the middle of January. We expect to see the benefits of that coming in March. Thank you. To everyone on this call, we appreciate your continued interest in DiamondRock and look forward to updating you with our first-quarter results.

2016_DRH

2017

PRFT

PRFT #Thank you. This is Jeff <UNK> and with me on the call today is <UNK> <UNK>, our CFO. I want to thank you all for your time this morning. As typical, we have about 10 to 15 minutes of prepared comments, after which we will open the call up for questions. <UNK>, would you please read the safe harbor statement. Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and we encourage you to review the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion. At times during this call, we will refer to adjusted EP<UNK> Our earnings press release includes a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, or GAAP, and this is posted on our website at www.perficient.com. We have also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures compared in accordance with GAAP on our website under Investor Relations. Jeff. Thanks, <UNK>. Once again, good morning, and thanks for joining us as we discuss our first quarter results with you today. Momentum built as the first quarter progressed. 2017 is off to a solid start and ramping. Our revenue and earnings expectations for the year remain intact. As we mentioned on the Q4 call just a couple of months ago, we're focused on several strategic and tactical initiatives we believe will drive margin expansion to the levels we previously delivered. Those results have begun to materialize and will be reflected in our Q2 results when we report in early August. I'm sure you saw in the news release that in addition to the quarterly revenue guidance, we provided historically, we'll now be issuing quarterly earnings guidance to provide the market with a better sense of how our revenue will flow through the earnings in any given quarter. As you can see in the Q2 guidance that we're projecting a strong uptick in Q2. Services margins during the quarter ---+ Q1 were 36.1%, consistent with similar period performance for several years. Importantly, we're expecting a 200-plus basis point increase to EBITDA in the second quarter and similar margin expansion in the second half of the year. One of the factors that will drive improved margins is growing ABR. North American ABR was up 1% during the quarter, and we expect we can drive rates 3% higher by the end of the year, which should translate into a 2% increase for the full year. Entering the year, we adjusted our sales plan to incent this behavior and we're seeing in the results. There are a lot of positives right now as we move further into 2017. First, our pipeline is very strong and pipeline is up almost 20% year-over-year. And more importantly, our high-probability weighted pipeline is up nearly 30% from a year ago this time. Our brand and reach is building, and we're now in conversations and deals we've rarely been in. Across the board, we're pursuing more business than ever before. You recall just over a year ago, we formally launched our new brand and agency, Perficient Digital. Our work there is routinely winning awards, and we're now competing for and winning opportunities we otherwise wouldn't have. I mentioned that strong weighted pipeline earlier. We expect soon to close a new multiyear deal near $10 million annually, much of which hinges primarily around agency-of-record status with a large health care provider. And there are other multimillion-dollar opportunities in the pipeline as well. We continue to build the strength and partner relationship with the world's leading and emerging technology vendors. During the quarter, Adobe elevated Perficient to its premier partners here, 1 of just 6 firms globally recognized with that designation. We're really quite bullish on the opportunities we have with Adobe and around that platform. We spoke last call about the advantages we possess when it comes to H-1B reform. And now with more definition there, we remain confident we're well positioned on a relative basis against many of our competitors. In fact, you may have seen one of the offshore firms earlier this week, [big] news ---+ or their announcement that they will attempt to hire 10,000 U.<UNK> workers in the next several years. That's easier said than done, of course. And while our competitors scramble to adjust to the new regulations, we're able to focus on continuing to pursue and win new client relationships. In fact, all of the major IT vendors have a significant issue of some sort here as it relates to visas. I'll touch on a few other notable topics and speak to our Q2 outlook after <UNK> shares the financial details. <UNK>. Thanks, Jeff. I'll discuss first quarter results. Total revenue for the first quarter of 2017 was $111 million, a 10% decrease compared to the year ago quarter. Services revenues were $100.9 million in the first quarter of 2017, excluding reimbursable expenses, a decrease of 8% compared to the comparable prior year quarter. Services gross margin, excluding stock compensation and reimbursable expenses, was 31% ---+ 36.1%, excuse me, for each of the 3 months ended March 31, 2017 and in 2016. SG&A expenses, excluding stock compensation, decreased to $23.4 million in the first quarter of 2017 from $24.5 million in the comparable prior year quarter. SG&A expenses, excluding stock compensation, as a percentage of revenue increased to 21% from 19.8% in the first quarter of 2016. EBITDAS from the first quarter of 2017 was $14.1 million or 12.7% of revenues, compared to $17.2 million or 13.9% of revenues in the first quarter of 2016. The first quarter included $3.6 million of amortization expense compared to $3.4 million in the comparable prior year quarter. Adjustments to fair value of contingent consideration of $0.2 million were recorded during the 3 months ended March 31, 2017, which included the accretion of the fair value estimate for the earnings pace, continued consideration related to the acquisitions of Enlighten, Bluetube and RA<UNK> Our effective tax rate for the first quarter of 2017 was 40.2% compared to 31.1% for the first quarter of 2016. The increase in the effective tax rate is primarily due to differences between book and tax results and restricted stock vesting during the 3 months ended March 31, 2017, versus the 3 months ended March 31, 2016. The tax implication of restricted stock vestings were required to be reported as discrete adjustments in the quarter in which they occur. Net income decreased 50% to $2.7 million in the first quarter from $5.4 million in the first quarter of 2016. Diluted GAAP earnings per share decreased to $0.08 a share for the first quarter of 2017 from $0.16 in the first quarter of 2016. Adjusted GAAP earnings per share decreased to $0.24 a share for the first quarter of 2017 from $0.29 in the first quarter of 2016. Adjusted EPS is defined as GAAP earnings per share plus amortization expense, noncash stock compensation, acquisition costs and fair value adjustments to contingent consideration, net of related taxes divided by average fully diluted shares outstanding for that period. Our earning billable headcount at March 31, 2017, was 2,292 and that included a 2,118 billable consultants and 174 subcontractors. And the SG&A headcount in March 31 was 461. We ended the first quarter 2017 with $38.5 million in outstanding debt and $10.9 million in cash and cash equivalents. Our balance sheet continues to leave us very well positioned to execute against our strategic plan. Our day sales outstanding on accounts receivable decreased to 69 days at the end of the first quarter of 2017 compared to 79 days at the end of the fourth quarter of 2016 and 85 days at the end of the first quarter of 2016. I will now turn the call over to Jeff for a little more commentary. Jeff. Thanks, <UNK>. Regarding Q1 bookings, we sold 49 deals, north of $0.5 million each during the first quarter. In fact, they averaged $1.4 million each, that compares to 40 in the fourth quarter averaging $1.4 million and 50 in the first quarter of 2016 that averaged $1.4 million as well. So a nice uptick sequentially in large deal line and another strong first quarter bookings performance as I mentioned earlier. During the first quarter, the health care and financial services verticals again lead the way with automotive and retail and consumer goods, also demonstrates strength. Collectively, those 4 groups accounted for 62% of revenue; health care at 25%, financial services at 16%, automotive 11% and retail and consumer goods at 10%. And we touched on this in the last call, but we continue to focus on moving upmarket and cultivating long-term relationships at the highest level within large enterprise accounts. That's something we have been doing quite successfully in recent years. We made great progress during the quarter, integrating RAS & Associates, management consulting firm we acquired at the beginning of the year. And we remain committed to M&A and in active discussions with several firms, focused on adding $40 million plus in run rate revenue before the end of the year through that program. We remained active buyers of our stock during the first quarter. We expect to continue that through the second quarter and the rest of the year. We've now repurchased more than $12.5 million of shares and stock since the program's inception. Finally, we're excited to welcome Brian Matthews to our board. Brian is a seasoned serial entrepreneur and a well-known, well-regarded business leader. We're going to benefit from his insights and leadership as we continue to grow the firm. So now turning our attention to expectations for the second quarter. Perficient expects second quarter 2017 services and software revenue, including reimburse expenses, to be in the range of $111 million to $123.5 million, comprised of $106 million to $112.5 million of revenue from services, including reimbursed expenses, and $5 million to $11 million of revenue from sales of software. The company expects second quarter adjusted earnings per share to be in the range of $0.29 to $0.31. The company is reaffirming its previously provided full year 2017 revenue and earnings guidance ranges. With that, we can open up the call for your questions. Operator. Yes, Frank, I think we're definitely seeing a return of momentum there. Couple of things to keep in mind. I think a good portion of that downtick, that you are referring to, was actually kind of dilution from the acquisitions we've done that don't do health care ---+ don't focus on the health care industry. So it's more a result of that. However, as we've talked to in the past, we certainly saw sales cycles extend there, going into the election, and I would even say, kind of grew the last quarter. But by March, we've seen that begin to reverse, and we're seeing contraction there. We still got a very healthy pipeline. So I would say we continue to see good strength in that industry. We expect to have good results there, mostly driven by patient as consumer and the move to consumerism within that industry, rooted in analytics and a lot of customer and patient-facing applications. Yes. We've had some anchor accounts there. On 1 of them I think the largest Fortune 50 company is the largest manufacturing, I think, in the U.<UNK>, is a key client of ours, that certainly driving a portion of it. But generally speaking, I would say beyond that, we are seeing a little bit of an improvement there that I would say is probably macro-driven, but remains to be seen. Regardless, we're certainly seeing some nice improvement there as well, as automotive remains strong. Yes. The organic growth for the quarter was actually contraction of about 11%-or-so year-over-year. And as ---+ with regards to talent, attrition in the quarter annualized was right around 20%, a little bit over 20%. Our goal is a little below 20%. 17%, 18% is probably the ideal. I think anything below that is actually healthy as well. So we're a little bit over that, but I ---+ I'm not concerned about it. In terms of talent acquisition and retention, we really had great success in finding the folks we need. I think I mentioned the ---+ some of the offshore majors trying to hire talent here. We've always had great success competing with them for talent. I think we're a preferred employer for a lot of reasons, not the least of which is culture. Sure. Sure, Josh. I think we're very stable there. It's the way I would describe it. Since we had the partial pullback in Q2 of last year, it's been much more stable since then. I think the dust has settled. We're delivering against our expectations and the overall program is running much more smoothly. We don't expect any additional gyrations going forward. Of course, as you know, no crystal ball, but as things stand today, it's very solid. Sure. I think it is sustainable. I think the simple answer really is kind of the dust settling after our election. I think there's no question, particularly with hindsight, if you go back to about the middle of last year or certainly beginning of the fourth quarter, and we can certainly see sales cycles extending then and carrying into the first of the year. But I think the dust is settling now, and I'm optimistic that, that is behind us and the trend is upward from here. I'm also encouraged by, obviously, we're a consumer-driven economy, so consumer sentiment is strong. As you can see, the first quarter was a little disappointing, but I think the seeds were sewn for that long before this year and long before this administration. So I feel overall optimism that things will only improve from here. Yes, absolutely. So keep in mind that Q1 was sort of a normal comp. And we did deliver gross margins that were flat relative to the last few years for the first quarter. So we do expect margin expansion, gross ---+ both gross margin and EBITDA margin going forward. Utilization by March had risen to about 79%. We're in the 80s as we speak right now at the end of April and into May. We broke into the 80s. And we expect we'll be able to maintain 80-plus, low 80s through Q2 and 3 and then of course, seasonality will likely drive that back into the high 70s in Q4. So overall, for the year, I'm still looking for a couple of 100 basis point improvement to utilization. And, of course, that will drive the same into gross margin improvement and a fair amount of that will drop to EBITDA as well. Excellent question. And we're certainly keeping an eye on that. To your point, right now, things are fine. But certainly, as these offshore majors look to hire more U.<UNK> folks, I think wage inflation is a concern. And we're prepared for that. But the good news is that, 1, I think we're the preferred employer. Even if we have to pay a little more, I still think we get the resources. And in terms of paying a little more, one thing we're doing this year is stepping up our campus recruiting efforts. We've always had great success there and that will help us keep costs in check. But I will even say this as well, in the past, certainly when this industry was really booming, let's say, we go back to even 2010, 2011 or 2007, we can pretty quickly convert those rising costs and increase ABR. Clients will see ABR rising across the board. So there's less resistance actually and less expectation of lowering costs and more of an acceptance of rate increases. So it would be a matter of timing and making sure that we respond quickly. But I think we can do that. We've done in the past and again, I think clients will be accepting of it because they will see it across the board. Yes. Actually we are very bullish on offshore, continue to be. Our gross margins for offshore, even though we've dropped our rates a little bit so we could drive more volume. That's actually still yielding about 55% gross margin. And we believe we can hold that at 50% above or up. The reality is the skill set that we employ offshore is different than the majority of our competitors; it's higher end. And so we can get, and we'll continue to get good rates for those folks. So we're very bullish on that. I think the mix shift to offshore continues and as much as, I believe, our offshore business will continue to grow at pace well ahead of the onshore component. And like you said, we love that in terms of margin expansion. It, obviously, creates a little bit of a challenge in top line growth, but the tradeoff is fantastic margin. Yes. Absolutely. And keep in mind, we\ Sure. Absolutely. We do have a number of things in play right know on the M&A front. We got one deal that we're pursuing, pretty focused arrangement with at the moment. So we're not there yet, but certainly things are looking positive. That does happen to be in the digital space. Valuations remain reasonable. We tried to drive a 5 to 7x trailing 12-month EBITDA valuation. And certainly with things in the digital space, we're looking at multiple that's at the higher end of that range. But a lot of the way we achieve that is through an earn-out, so we've got downside risk. So we do have a deal that we're working on right now. We've got several other behind that in the pipeline and/or alternatives if this one doesn't pan out; most digital as well as outside the digital space. All right. Thank you all for joining today. We look forward to discussing the Q2 results with you in a few months.

2017_PRFT

2017

DAKT

DAKT #Thank you, operator. Good morning, everyone. Thank you for participating in our fourth quarter and year-end earnings conference call. I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities. All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially. Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations in margin, the introduction of new products and technologies and other important factors as noted and detailed in our 10-K and 10-Q SEC filings. At this time, I would like to introduce <UNK> <UNK>, our Chairman, President and CEO, for a few comments. Thank you, <UNK>. Good morning, everyone. Overall, we had a successful fiscal 2017 for Daktronics. We increased in volume in 3 important categories: orders, sales and profits. Orders included a number of high-profile or spectacular projects and larger sport video projects as well as gains for standardized solutions for businesses and schools. Sales exceeded $586 million, an increase of 2.9% as compared to fiscal 2016. The orders and sales volume increases reflect the improved global economic conditions over the year, the health of the digital solutions market and fluctuations caused by a large project-based business. International business unit orders increased by 30.1% on a year-to-date basis. This is primarily due to improved global market conditions during fiscal 2016 as compared to 2017, giving confidence for more customers to move forward on projects. We did well on our account-based out-of-home billboard space and in sports projects like that of Perth Stadium in Australia and Commercial spectacular customers like Piccadilly Circus in London. We continue to focus on the Transportation segment internationally, too, with new or enhanced offerings for mass transit and intelligent transportation system applications. Orders increased in High School and Park and Recreation business unit year-over-year, which is primarily due to a strong market demand for large video sporting applications. We are seeing trends in this market similar to college and professional sports, with increased size and advanced capabilities for these systems, and are beginning to see high schools refer to their displays as the largest in the state. HSPR also includes on-premise messaging solutions for parents, and those orders were strong this past year. Commercial business unit annual orders increased 11.6%. Our on-premise and spectacular niches in Commercial predominantly led the improved order volume year-to-date. Spectacular niche has seen stronger porting activity and more customers are moving forward this year as compared to last. On-premise orders have increased related to in-store digital media solutions sold through ADFLOW, the company we acquired last year during the fourth quarter. While we estimate our market share in the digital billboard segment held in the national operators and expanded with independent billboard operators, overall order activity declined for the year. Order activity in the billboard niche is impacted by customer capital allocation decisions, replacement cycles, permits and general economic conditions. Transportation business unit orders increased this year compared to last, mostly due to increased state procurement project activities and variability caused by large order timing. Demand includes applications for intelligent transportation systems, transit, airport and parking segments. An example of locations using an ITS system is our multimillion dollar project for Nevada Department of Transportation, Project NEON. This project will include multiple large, full-color displays that extend across 6 lanes of traffic and include dynamic message capability to show incident and speed information. Live Events business unit's orders remained strong, reflecting the ongoing trend of professional and college sports arenas increasing the size and capability of their display systems to attract and entertain their fans. Our profitability improved over the year. The sales levels and improved productivity in our fulfillment processes increased gross profit, as did the decline in warranty costs as a percentage of sales. Operating expenses increased as we invested more than our traditional spending in our product development area to accelerate the creation or enhancement of customer solutions, including investments in both display and control technologies. For more details on the financial results, I will turn it back to <UNK>. Thank you, <UNK>. Orders increased 24.4% for the fourth quarter, and for the year, order volume increased 9.4% for the reasons <UNK> highlighted. As a reminder, orders and net sales fluctuate due to the impact of large project order timing, including display systems for professional sports facilities, colleges and universities, spectacular projects and other account-based business. Our business also fluctuates based on sports market seasonality and construction cycles. Sales for the fourth quarter of fiscal 2017 increased to $144 million as compared to $138 million last year. Sales increased in the Live Events and International business units, decreased in the High School Park and Recreation business and remained relatively flat for the Commercial and Transportation business units quarter-over-quarter. Live Events contributed to the sales increase, as the number of projects for both National Hockey League and other minor league stadiums work was up as compared to last year. International net sales increased for sports and spectacular projects. High School Park and Recreation net sales decreased due to the general lag and timing of orders during the quarter. Sales increased to $587 million as compared to $570 million last year. Sales increased in the Live Events and High School Park and Recreation business units, decreased in the International business unit and remained relatively flat in the Commercial and Transportation business units. Live Events contributed to the sales increase for the number of projects for the National Football League was up compared to last year. We were also successful in our High School Park and Recreation business units due to the increased size of video projects with larger average selling prices and more custom indoor and audio demands compared to last year. International net sales decrease was due to the timing of the conversion of orders to sales. Large project orders can include several displays, controllers and subcontracted structure builds, each of which can occur on a varied schedule for the customer's needs, causing timing difference of orders to sales. Gross profit improved to 23.9% during fiscal 2017 as compared to 21.2% during fiscal 2016. Gross margin percentages were favorably impacted by lower production costs, lower warranty costs as a percentage of sales, higher sales volume and a favorable mix in sales. For the fourth quarter, gross profit was 23.5% as compared to 20.2% in the fourth quarter of last year for similar reasons. Total warranty as a percentage of sales was 2.5% during the year as compared to 4.1% last year. For the fourth quarter, total warranty as a percentage of sales was 1.7% as compared to 4.6% last year. We continue to serve customers impacted by the warranty items discussed during fiscal year 2016 and manage for those reserves. We have approximately $3 million remaining in that specific reserve. While many of our contractual warranty arrangements are nearing the expiration for the product with this issue, we may experience additional costs to maintain customer relationships for a higher-than-expected failure rate. Operating expenses increased 6.5% ---+ $6.5 million or 5.5% for the year and remained relatively flat quarter-over-quarter. Selling expenses increased $2.9 million during the year, primarily due to the addition of ADFLOW's costs in comparison to last year and increases in personnel costs and bad debt expenses in other selling areas. General and administrative expenses increased $1.4 million during the year due to increases in personnel costs and professional fees. Product development increased $2.2 million due to additional resources allocated to our product development functions to increase velocity of solution developments. Our overall tax rate expense was 33.7% as compared to 34.1% last year. We forecast the forward-looking effective annual rates to be approximately 32% to 34%. Our effective tax rate can fluctuate depending on changes in tax legislation and geographic mix of taxable income. Our cash and marketable securities position was $65.6 million at the end of the quarter. We reported a positive free cash flow of $31 million on the year-to-date basis as compared to a negative free cash flow of $3.3 million for the same period in fiscal 2016. The increase in free cash flow was primarily due to improved profits for the year, improved operating net inflows this year due to the timing of receivable and project cash receipts, net of payments out for inventory, the decrease in inventory and reduced capital spending. We constrained capital expenses to $8.7 million for the year as compared to $17.1 million last year. This spend level is lower than anticipated due to the timing of cash outlays for the capital spend at the end of the year and overall evaluation is not at the level previously estimated. Primary uses of capital included manufacturing equipment, research and development, testing equipment and facilities, demonstration equipment for new products and information technology infrastructure. We made no repurchases of stock during the fourth quarter. Looking ahead to fiscal 2018, we are starting with a strong backlog and order pipeline. We expect most of the $203 million backlog to be converted to sales over the coming year based on expected delivery needs of the customer. We estimate our first quarter sales to exceed last year based on current product and delivery schedules. We continue to focus on improving gross profit levels through customer-targeted solution offerings, offering them more value and in continuing to focus on productivity metrics and continued improvements through all fulfillment of the operations. While we continue to manage our cost infrastructure carefully, operating expenses are expected to increase for personnel-related costs. We also expect to invest additional resources in our product development areas for another year to foster product release velocity to the market. We are projecting capital expenditures for fiscal 2018 to be approximately $28 million for manufacturing equipment, quality and reliability equipment and continued IT infrastructure needs. We will continue to monitor share repurchase options and other business investment opportunities to utilize cash. With that, I will turn it back to <UNK> for additional comments and our outlook. Thanks, <UNK>. As we enter fiscal 2018, we are confident in the expanding digital marketplace and the opportunities available across the sectors we serve. We begin the year with a near-record backlog, and while competition remains strong, we expect continued success in our business over the long term for the following reasons: We continue to enhance and develop product lines and comprehensive solutions for our broad market base and specific customer needs. This allows for success in markets during natural ups and downs of each segment. In addition to our comprehensive product lines, we are committed to earning customers for life, driving continued investments in quality, reliability and other performance enhancements to meet our customers' needs today and over the long term. We actively support our customers from initial product check planning throughout the intended use of the system, leading to satisfied customers and repeat business during the natural replacement cycle. And finally, the market adoption and use of digital continues to grow and is predicted to grow. While optimistic about our long-term future, various geopolitical, economic and competitive factors may impact order growth. Our business will continue to be lumpy. While these areas can affect a specific fiscal period, we continue to pursue profitable growth. For fiscal 2018, we believe in the following trends in our business units: Our International business unit continues to be poised for growth through expansion of the use of digital systems and increases in market share in our focused segments of sport, out-of-home, Spectacular and Transportation. We expect continued demand for larger orders due to the adoption of video sporting applications in the High School/Park and Recreation market, allowing for growth. Transportation has growth opportunities due to continued investment in the U.S. transportation systems and the stability in federal funding. In our Commercial business unit, we see opportunities for growth because of the number of unique digital opportunities in the Spectacular segment, new customers and replacement cycles for national account-based business, expansion of solutions for indoor applications and improved volumes in the Billboard segment. We expect Live Events' sales to maintain order levels of prior years. During fiscal 2017, we made progress on increasing product development velocity and expect to continue this into fiscal 2018. While these efforts will increase product development expenses, we believe this investment is necessary to drive forward new solutions to meet customer needs and expand our global market share. Rollouts of products, including display and control solutions, are expected throughout the coming year. While the path will not always be smooth, the growing market and industry-leading solutions position us to generate long-term profitable growth. With that, I would ask the operator to please open it up for questions. We had a good fourth quarter, like you mentioned, and part of it is our lumpy business. So we had a nice run in our Live Events order for the fourth quarter, continued movements on projects there, and then other businesses continue to remain strong. <UNK>, this is <UNK>. I believe that we see the gross margins to be stable to climbing. Can we achieve our internal goals for gross margin is yet to be seen, but we feel we are in a competitive position in the marketplace and continue to win orders that we believe are good quality orders and will move the company forward. Thank you. I appreciate everybody on the call. I would like to say that we had a solid 2017. We're optimistic for our 2018. I would like to take this opportunity to thank all the employees at Daktronics that helped achieve this success and as well as our suppliers that really helped us out, and I look forward to working with them in 2018. I hope everyone has a wonderful summer, and we'll talk again near Labor Day. Bye-bye.

2017_DAKT

2016

EA

EA #So on the Origin Access piece that we just rolled it out, so it's very early days and it's hard to get any data yet. So more to come on that. But obviously we are very excited about what we have been seeing in EA Access and that was part of the reason we decided to roll out Origin Access. It's a different group of titles because not all of our titles are PC titles. So we will probably see some different dynamics between players, but we hope to see similar dynamics than we have seen in EA Access. Because it's exciting to see obviously people broaden their interest in more games than simply one franchise. On your first question, can you go back and just repeat again what you were looking for there. No, we're very comfortable with where the channel is. We actually had a very strong sellthrough during the quarter as well as sell-in. And there are some accounts, obviously, that are replenishing in their ---+ as they get through their January time frame. And we are very comfortable with where the channel inventory is now. I'll take the Titanfall question. Again, it's a little early to start talking about the details of Titanfall in this juncture, and that wasn't the purpose of raising it. What I would say, having seen the game, is it's looking fantastic. Our relationship with Respawn is extremely strong; we have great faith in that entire team to build a spectacular game and are really looking forward to sharing more details in the months ahead. As regards competitive gaming, obviously we see a great opportunity going forward here. I'll remind you and I know you know this that we've been doing this for a number of years, whether it's been our involvement with FIFA with the FIFA Interactive World Cup. As was mentioned in the prepared remarks, we're looking forward to the finals of the Madden Challenge series at the Madden Bowl on Thursday night here in the Bay Area. But we also see this may be a little different late then maybe some of our publishing brethren that are in the marketplace right now, and we see this as a tool and a platform to increase engagement. More and more session days with games is good for Electronic Arts; it's good for our players. We are taking a very player-first view on this in which we are building community. It's clearly an entertainment medium, I think there's a lot of excitement around it, and I can't think of anybody that's better served with the diversity of our portfolio when you think about sports titles in particular, FIFA and Madden, as well as our Battlefield franchise that has been able to build a meaningful business over the next couple of years. Let me first speak to just discounting in general. This is a business that in the holiday time frame, between Black Friday and <UNK>tmas, has traditionally done a lot of discounting. It's a way of driving volume, particularly when people are now buying for the first time a new console, often they want to build up their software inventory pretty quickly. And we find that discounting helps drive people into the engagement. We obviously share that view with the retailers and we help support the retailers in that each year with specific programs, and I think we've done that year over year and it really doesn't impact that. We are also doing discounting on the digital side to try to keep the two aligned. We don't want to have a disconnect between pricing in one area and pricing in another. And so you'll tend to see us drive volumes through discounting and it's pretty consistent year in and year out. I would say this year, our programs were very similar to what you saw last year or similar to what we've seen with all of our other industry partners and titles that they may have had. There wasn't a lot of difference between years. On the sales reserve, we take the sales reserves upfront at the start of each quarter in anticipation of what our sell-in is going to be. And we use those sales reserves during a quarter on a very formalized planned method. So all of these sales get planned well in advance and we need to make sure that we have the appropriate reserves in place to help pay for those over time. And so we will be setting up sales reserves each quarter as we go in, and those tend not to impact margins or margins that we forecast, because they are already built into the numbers. I can take that. So what we've seen is really there's two groups that have either come for the first time or have come back to gaming. The first group is people, quite frankly, of my generation or my vintage, who have been gamers in the past have for whatever reason kind of moved away from it and particularly moved away from core FPS shooters because they have become very hard and complicated, and quite frankly brutal to play online. They've come back in light of the Star Wars IP and the commitment and the passion they have around that from their youth. At the same time, they now have kids who are of game playing age who may have not got into the first-person shooter universe yet because of the nature of the content inside of some of those games. So we are seeing fathers and sons play; we are seeing mothers and daughters play because of the broad appeal. So the big groups that we've added as kind of a youth demographic, it skews typically younger than we have seen before, as well as an older demographic that we may have had interaction with some years ago, but had lapsed out in recent years, particularly from the first-person shooter universe. And we are looking now at how we continue to provide content and experiences that engage those two new groups so that we maintain relationships with them over time. Let me start there. I don't think there's any indication that this mix shift is anything but a Star Wars Battlefront opportunity. Remember the movie was out, all things Star Wars for the month of December, and it was the perfect gift giving opportunity. And typically with gifts, someone wants to have a package under a tree or in a gift pile somewhere versus a digital code. And that was the driver of the shift. We could see ---+ when we do the next Battlefront, we could see something like that, but we have no idea on exact timing yet for ourselves or the industry, and exactly how the buzz around Star Wars will be when that comes again the next time around. So right now, I would say nothing would imply to us that the digital journey is slowing in anyway. And in fact, if we look at all of our non-Star Wars products, every one of them were up digitally in full game downloads and the digital engagement associated with them. You look at the Ultimate Team statistics we gave you, that's clear sign that people are playing and engaging longer and longer around the titles. In terms of guidance, guidance on Star Wars, we are not going to break out individual guidance. Obviously, we'll end up selling more than the 13 million units, as we've already gotten there. We did sell more in the third quarter, so we may ultimately sell less in the fourth quarter than we originally thought. But we will clearly sell more overall and that's built into our guidance for the fourth quarter. I will remind people about fourth quarter, though. Don't forget that there is a continued FX headwind that we've called out, that's $40 million of headwind. I'm not sure everyone is modeling that into their models. And we are not ignoring the fact that there is a economic headwind out there around the world that hasn't really impacted us, but we are being conservative when we give our guidance around watching that closely. In terms of next year's guidance, the title slate that we talked about on the core titles along with the traditional sports titles, the one thing to note is Q1, the only title we have in Q1 is Mirror's Edge, plus all of our catalog business and live services business. But our core console title will be Mirror's Edge. And as you're doing ---+ we'll give you real full-year guidance in May when we sit down to do the next earnings call. But as you're starting to think about guidance for Q1 and next year, don't forget about the continued FX headwinds, which are impacting us, as well as in Q1, one specific item. Remember that last year in Q1, we had a $30 million benefit ---+ one-time benefit from FIFA Online 3 as we started that up, and we had deferred revenue all into Q1. So that was high profit revenue that came into Q1. A couple of basic things for your model, but things to remember. But we are excited about the rest of the slate. You should assume that Battlefield would come typically in the third quarter when we normally have it. We are not yet announcing when Titanfall or Mass Effect: Andromeda will come, but you should assume that is in the back half of the year as well because the second quarter was so dominated by our sports titles. We don't. But we probably will in the next quarter. I'll take the Madden Mobile one. As we think about all of our mobile games, we really think about them on four vectors: discovery, how someone will find the title, whether that's through an App Store or through social representation; onboarding, how someone will get into the title; the gameplay mechanic itself, so actually what do you do while you are playing the game; and then how do we run the service that actually surrounds that game to make it new and interesting, fun and dynamic and engaging on a moment-to-moment day-to-day basis. As we look at what we've done with Madden NFL Mobile over the last couple of years, you will have seen we've fundamentally overhauled all four of those vectors since we first launched Madden on mobile devices. We now believe we have landed in a place that has a game that is very social in nature, has a game that onboards new players and a broad demographic of players. We have a game mechanic that feels right for mobile devices, and our teams are delivering live events that tie to the passion that players have for the real world of the NFL and are very engaging for them from an ongoing basis, both during the weekend games and the week leading up to those games. All of those opportunities presently learning for us as we take these types of things to our other sports games on mobile. And we expect to be able to do well in those areas. Your second question was about trends and full game downloads. We clearly continue to see the trending upwards; we see titles running anywhere between 20% and 30%-plus. We've always seen FIFA skew lower because of in Europe, many retailers use that as a loss leader to drive traffic into their stores, and that tends to be a physical copy. But in the rest of our sports portfolio, we tend to see strong digital full game. Really, Star Wars was the only gen-4 title that indexed lower than the average because of the gift giving issue. So we are very comfortable with the continuation of where that trend is going industrywide. The context of VR. Sure. I'll echo what we talked about on some previous calls, which is we believe that VR is going to be an important part of our industry. We do believe it's a number of years out before it's a meaningful part of our industry, but right now, we are investing at a core engine level. We've talked about Frostbite as we move to a single engine for the Company, and that team is working to ensure that they can output virtual reality experiences regardless of device. And then we have a few key game teams around the Company who are doing targeted experiments as it relates to very engaging virtual reality experiences in the context of particular genres. I would expect that we would start to surface some of those over the coming years. And that we would start to build it into more fully fleshed experiences over time. I think pure dollar OpEx has gotten ---+ we've gotten a benefit this year of FX on our OpEx line because many of our studios are outside the US. So we have a large base obviously in Sweden and Canada, in Romania, in Australia. Many in China; many of those have obviously come in at lower dollar costs. We've tried to report each quarter what the actual dollar costs are, and you've seen some continued investment. Our goal is to try to keep R&D expenses around the 22% to 23% of revenue line, which means if our revenue is growing, we are clearly continuing to invest in R&D. We think that's very important for our future. You will see marketing expenses bounce around depending on the title in the quarter. So this quarter, our marketing expenses were up, if you FX adjust them, and that was driven by the fact that we had a fairly large title this year that we didn't have in last year's third quarter. This year, Star Wars; obviously last year, our large title was Battlefront Hardline in the fourth quarter. And so you get some of that timing differences. But you'll continue to see general increases in OpEx with a goal to try to target R&D around the 22% 23%, we're trying to push marketing expenses down into the 13% range and hold G&A in that 8% to 7% range if possible. So that's what you're going to see as a percentage of revenue and hopefully it will continue to be reflected in our business going forward. I can't say much more than March. But I would assume that much of that revenue will probably fall in the first quarter versus the fourth quarter, but it's hard to see right now. I don't have the year-to-date number with me here. But it's fairly consistent with what it was in the quarter, just off the top of my head. And we are continuing to see that. Remember we had a slowdown in FIFA Ultimate Team in the fourth quarter last year as we put the price banding in to address the inflation in the marketplace issue that we saw. We are currently forecasting that we will have a stronger fourth quarter than we did last year because obviously we've corrected some of those price and coin farming issues. So we should continue to see strong growth of Ultimate Team through the year, and probably for the full year clearly exceed because of the lean last quarter last year. But clearly the business continues to grow, and we've done a good job of bringing new users, so we are not taxing the existing users. But it gets harder and harder to grow the business at the size that it's at. So we will see what it looks like for next year. The other thing to really remember as you're looking at it is realize that a huge portion of the Ultimate Team audience for FIFA is outside the US. Large markets like France, Germany, UK, and so all of those markets have a headwind from FX that we are clearly seeing in the growth numbers. So as I mentioned today, 18% on a constant currency basis for Ultimate Team ---+ or for FIFA, and that's a pretty impressive growth rate on a business of that size. We are down to less than 15 major SKUs. And that feels like a good size of the business and we are obviously announcing that we are investing in some action-based SKUs by bringing people like Jade Raymond and Amy Henning into our organization to help build those. And those are obviously a few years out in our SKU plan. But clearly we want to try to grow genres, and grow our revenue base with more titles, both digital live services titles as well as traditional console titles. Part of ---+ to do that part of it is we have to be ruthless that we don't spend a lot of money on smaller titles, we size them correctly, but we also want to continue to look for ways to bring new, interesting titles to the market. Look at Unravel as a perfect case of that. We're trying to address the marketplace for broader titles that address a wider audience in terms of types of games they are, the types of games people want to play. We are also trying to build enough product to be able to effectively run subscription-based businesses, and that requires a great portfolio, which we have and will continue to add to. We will always cull, but there's not a ton of things to cut back on today because we've brought the total number of titles down to a very perfect level for us now. I guess I would remind people that we did raise full-year guidance. That's the third time this year we've raised full-year guidance. We've got a track record I think of ten quarters in a row of beating our guidance. I think we've exhibited some conservatism in how we operate the business, which we think is a prudent thing to do. And we are sitting with an FX headwind and a lot of uncertainty in the economy. You put all that together, I don't think that signals anything negative about the fourth quarter. It signals the way we've been approaching the business and operating the business. And that's what we are going to continue to do. In terms of FIFA Online 3 in China, the key there is we are continuing to see very positive reactions. But we also have a very long-term view there. So that continued level that we've talked about, $10 million to $15 million a quarter, is still consistent with where we are. And when we give you guys guidance in the May time frame, we will update that number if it looks like it should be updated. But all is very positive in that. And our partner TenCent continues to be extremely happy. With that, maybe I'll let <UNK> hit the VR question, if there's anything more to say than we already said. Not a lot more to say at this point. No announcements as to launch times or servicing the experiment at this stage. But as we go into calendar 2016, as we start to come closer to our EA player events in LA and in London, we will be talking more about our full title slate and some other new in-development products that we have running across our studios right now. On the macro environment, we've mentioned a couple of times our caution because of the macro environment. We have not seen anything in our business or heard anything from other players in the business that would imply any economic slowdown in entertainment software. As I said, we have a level of conservatism about just the global economy, which at some point in time, there's trouble in the global economy that would impact everybody probably. I think our business seems to be operating pretty consistently, as it has been over the last couple of years. The console purchases up through the end of calendar year 2015, our estimate is 55 million units out there, which has exceeded virtually everyone's forecast for the year, and is now almost 50% higher than the previous console cycle. So all of that is very, very positive; all the gameplay we are seeing and the engagement in things like Ultimate Team we're seeing as positive. We're just conscious of the fact that there's a lot of storm clouds out there and we want to be careful that we don't get ahead of ourselves or the economy in our forecast for the business. And that's what you are hearing. The second part of the question was the Amazon issue. We do not fund the Amazon discount; that comes out of Amazon's own pocket. I think that's fairly consistent with how Amazon operates. And we don't have much say or view on pricing of anyone in the marketplace. That's their job, not our job. For us, if it brings new game players into the business, then we are excited, but we don't really have much more to say or control over their pricing strategy. What we have seen is more and more, we need to be close to our player. And what you've seen from us over the last couple of years in almost all of our actions, whether it relates to development or marketing or sales, is attempts by us and endeavors by us to get as close as possible to our players and get direct feedback from them. We believe that's the single best way to ensure that we are making games that they want to play. And that we are making some of the best games in the industry. And we see this as an opportunity to do just that: get close to our player, invite them in in an environment where they feel comfortable to play games, give us feedback, and interact socially as they do, whether it's through social networks or with their friends or what have you. We continue to be members of the ESA and we will have meeting rooms at E3 this year. So what we see we are doing is augmenting the overall E3 experience. And we are excited by what we are going to be able to do as it relates to EA Play and we are excited for what the industry is going to be able to do as it relates to E3 more broadly. To add to that, we are also doing a simultaneous event in London. And so in some ways, we're trying to do a more geographically spread way to introduce people to our new products. I'll start with Star Wars. I don't know; <UNK> might want to chime in on the mobile piece. On Star Wars, the one thing that we are adhering to, and I think this is part of our arrangement with Lucas and Disney, is you can't make a game in Star Wars that violates the canon of Star Wars. Meaning, you can take something from the future and bring it back into the past unless it's a reference. Not knowing yet exactly what the storyline in Rogue One is going to be, I can't comment on how that could come in. But to the extent that it's in the future around our current Battlefront game is all paced based on the historical Star Wars canon, which is 30 years before the most recent movie. That will limit our ability to bring some new content into that. But more to come there. Obviously we're trying to stay tightly connected to the Star Wars beat for future movies, and we will obviously in future Star Wars games be able to tap the new characters and vehicles and so forth. But in our current game, and for that matter the DLC associated with that current game, obviously we will have to be careful that we don't violate the canon. On mobile, obviously mobile ---+ one thing to remember is like our console business, mobile will always be a little choppy based on when new titles come out. But like most live services, they should be smoother than the historical beats around the console business. So over time, we hope to smooth that out. But there still may be some jumps up and down due to quarters. On the Star Wars play, just to add a little, what we have seen is that the movie or the content of the movie itself hasn't impeded the engagement in various Star Wars games. We've seen that across console, PC, and mobile. And we would expect that as more great Star Wars films come out, we would see more great engagement in Star Wars content more broadly ---+ again, not just in Battlefront, but in Star Wars: The Old Republic and our mobile game, Galaxy of Heroes. As we think about mobile, just to add to <UNK>'s point, I think he is absolutely right. The one other thing that we would point to is as we look at our mobile portfolio, our titles typically have very long lifespans. The Sims FreePlay, The Simpsons Tapped Out, Real Racing 3 have continued to grow over a number of years. And as we think about launching new titles, we are taking a little more time and being a little bit more calculated about how we launch, but we are doing so with a view that we are putting experiences into the marketplace that will live for many years and drive engagement and profitability for a number of years to come. And so as we look at the year to come, as we look at what we've done with Star Wars and Madden and some other titles that are coming down the chute, our expectation is that we are able to grow the overall business with them. All right. Thank you, everyone. We will see you next quarter.

2016_EA

2016

CENTA

CENTA #Thanks. Thanks, <UNK>. Difficult to answer that completely, <UNK>. I would say this, we saw some rebound in our business in June and the early part of July remained very strong as well. Now if you missed some of the spring planting season, you may not get that back until the fall, or it may be next spring before you see it again. I don't think that ---+ we may not capture that in this current fiscal year, let's put it that way. It's too hot now in many markets to plant grass seed or to apply certain applications to your yard, so there may be some lost sales as a result of that. However, if there's lawn damage this summer, you could pick that up again this fall. Difficult to project. This is <UNK>. Yes, we actually have seen a little bit of a slowing per the Nielsen numbers. Now keep in mind that doesn't include Amazon; it doesn't include a lot of the club channels. But there has been a bit of a softening across ---+ broad base, real softening across the Pet categories. So we're sort of following that lead and tempering expectations. Great question. I think ---+ I don't know. Is it the consumer; is it a cyclical thing. We haven't been able to put our finger on it. Again, we're trying to read the tea leaves here, looking through the Nielsen data. But I think ---+ one of the things to get our arms around is you've got a lot more data to get your arms around these days. Whereas before you could get a better handle on things through Nielsen, now you've got big chunks of the business that don't really report through Nielsen. So we have to keep our eyes really all over the place with respect to clubs online; there's just a lot more going on. The other thing I would add is, if you look at the overall Nielsen line for the categories in aggregate, we're not talking a major deceleration. We're talking roughly a point or point and a half, the thing (inaudible). So it's really tough to tease out what exactly is causing that type of change. The other thing to add too is, if you recall, our Pet businesses had really been outperforming each category by a dramatic amount. So I think it would be a bit unrealistic to expect that to continue in perpetuity. So I think tempering it a little bit is prudent. Thank you. I can answer that, all of the above. So I go back to our strategy. In some cases innovation will be a bigger driver on a business, and particularly businesses that we want to grow faster than the Company average. A lot of pet businesses, for example, fit that boat. I will tell you in terms of trying to grow more aggressively than market, you absolutely have to look at adjacencies, and we actively do that. Matter of fact I give a garden example, we've looked at hydroponics and we made a small acquisition there. So what I would say is, we are going to look at adjacencies. It is one way we're going to drive innovation and faster growth. We'll look at whether it makes more sense to develop those internally or make acquisitions if we can get them at the right price and the right timing. Sure, this is <UNK>. What you see on the marketplace right now are the repellents being the biggest beneficiaries of the Zika phenomenon. Our repellent business is on the professional side, and we rely on municipalities for business. We haven't seen really the federal funds trickle down to those municipalities and have not seen it manifest itself in orders as of yet. That said, we're certainly prepared to do our best, and we're on standby to help any city, county, or any of the abatement districts if we're called upon. And this is J. D. On the Garden side of the business, you're exactly right. So the controls business would have some products that could help in the control of mosquitoes, broad-spectrum multipurpose insecticides, but we don't compete in the area of personal repellent business. We're not going to shy away from private label. In instances where we're the low cost producer, in particular where we have excess capacity, we'll pursue private label. We particularly like private label in instances where we can work in partnership with the customers to develop a better product and some claims ---+ in many cases working with them on the claims on packaging, actual packaging graphics, so very much almost acting like a branded partner for our retail partners. So private label is something that we'll continue to pursue, and again we're the low cost producer and we have capacity leverage that we can use. Sure. So the IMS acquisition, which was the rawhide business, is a little bit further along. One of the top initiatives is to ---+ I think we mentioned earlier in the call that we were consolidating seven facilities into two in our dog and cat toy and treat business. That ---+ IMS is one of those businesses that we're consolidating. So that's well under way. That will be happening during 2017. The second one, DMC, which is the bedding business is a little bit behind IMS as far as that integration process. And I think we're going to see more of that as 2017 develops, that we will begin to integrate that as well. There's also a lot of manufacturing synergies and expenses that we can take out of that business as well, so we're eagerly waiting to get into that on a more meaningful level. No, it hasn't. We like to stay in that 3 to 4 times range. And like we've said before we could live at the upper end of that range for a period of time for the right acquisitions. So all the same. I didn't mean for that to be the takeaway. The example I gave that the dog and cat business is related to what I'll call complex cost savings projects, which are fueling ---+ providing the funds to drive innovation. In innovation I would talk way beyond dog and cats, frankly across the entire Company. We're looking at all the businesses that we want to drive top-line growth on, and some will have more of that role than others. And across all those businesses we'll be doing exactly what I was talking about in terms of taking a look at our pipelines, improving the depth of our consumer insights, and investing in people and capabilities to drive even stronger innovation. It is. Yes, that was ---+ within our pro business that was the star of the group and has been the last few quarters. About a year ago we had added some sales folks to that team and it's done quite well. We couldn't be happier with the results. There's plenty of opportunity there. As far as penetration, we don't give that sort of guidance in a business that size, but we certainly are not opposed to hiring more sales folks and putting a little more resource behind it since what we're doing right now is working quite well. Yes, we've picked up a large food and treat manufacturer and we continue to roll out the distribution there. We've also won some business at some large retailers. Again that ---+ we initially start that in a given territory, and then that starts to roll out across all of our territories. So we're starting to see that really take hold and that's really what's driving a lot of the growth. Great, everybody, thank you for spending the time with us. We had a terrific quarter. We feel good about our progress and our future and appreciate you spending the time with us today, so thanks.

2016_CENTA

2015

CTB

CTB #First of all, <UNK>, that's exactly what we're doing. We're moving it there primarily for import into the US, and we can do that competitively coming from Serbia. Having said that, there were also some products that we had been building in China for the European market. And we're ---+ we'll be doing most of that work out of Serbia as well. Timing wise, that's going to will be into the second, third quarter. We should have that transition done maybe a little bit sooner. That's in process as we speak. <UNK>, do you have anything else. It's moving product versus moving equipment. Or mold. Yes. Thanks. Good morning, <UNK>t. Well, I think first of all, you know, I don't know that the rest of the year is typical in our business for the last several years. And yes, you're right, in the second half you would normally see some margin improvement because it's a season high, if you would. So having said that, though, <UNK>t, I think the question really is what's going to happen with raw materials is one. And what's going to happen with these tariffs. What do we have to do to respond to that. And that's really the questions in our mind. That's why we're feeling confident saying, hey, we're guiding to the high side, but I don't think we're assuming that everything is going to be exactly the same as it is in the first quarter. Having said that, if you assume everything is going to remain the same as it is in the first quarter with the rest of the year, yes, I think you have a good point and a good argument there. We're not going to ---+ at this point in time, we're not predicting it's going to happen that way. There's too much volatility that we potentially could see that's out there. If it doesn't happen, I think we're going to be in very good shape. With the tariffs, obviously that impacts the pricing. The other thing I would add here that might be unique here, <UNK>t, would be the ---+ our additional cost that we're carrying in China to be able to support some acquisition or some investment in China or in Asia to continue our growth plans there. That's something that probably will be a little more unique this year versus what you have seen in the past. I would hope at this point in time, <UNK>t, that we could ---+ we would have a decision on our direction this year, 2015. As I mentioned before, it could carry into 2016. But the one thing that we want to be cautious of here is that we are being a little cautious going into this to make sure that we have done the proper due diligence and assessing the risk appropriately. What we're finding is we have a lot more companies that want to work with us and do business with us versus we've got to go through that and do the right selection. It just takes a little time for that. Our plan right now is to try to get it to a decision yet this year. Yes. We've not given any guidance on how we expect to do that. You can see from what we announced today that we've done $35 million through today. And we'll continue to make that decision based on market conditions. Alright, <UNK>t. Thanks. Hey, <UNK>. I think there could be some opportunistic buying out there, but we certainly aren't expecting it to be like last year because of the time frame. We are monitoring that and making sure that we're on top of anything going on in the market that would have an impact on our business. That's our current anticipation anyway. Not a lot. Those have been pretty effective for us. When you think about the ESPN halftime show in the fall here on NCAA Football, and those types of things that we're involved with, the PBR, which is ongoing for the year, the Arsenal investment that we renewed this year has been popular for us. The Canadian Hockey League, to build our brand, we've done a really good job of building our brand in Canada and getting some traction there. So we're going to continue with those until we see something shift there, <UNK>t. But those have been fairly successful for us. I would say this without getting into the specific numbers, because I don't think we have shared that in the past. Right now our inventories in the Americas, we're slightly below where we would like to be right now. So we're going to ---+ that's ---+ we're going to continue our manufacturing as we make this reconfiguration to continue to get to the levels we think it's going to take to support a very good fill rate in the third and fourth quarter. We're a little bit behind where we would like to be right now. I would like to thank everybody for being on the call today. I would like to reiterate that I'm confident in the worldwide growth strategy that we have in plan and the management team in place to direct that growth. You have heard a lot today on our comments and how we're doing in the business. I think our strong balance sheet enables us to meet all of our obligations as well as support the growth that we're pursuing, and it also allows us to continue to return cash to the shareholders. We're focused on implementing our growth strategies across the world while reaching our target operating margin range of 8% to 10%. As we've mentioned earlier, we feel all things remaining equal in this first quarter, we certainly should be at the high end of that range. We appreciate the interest that you have in Cooper Tire and look forward to seeing many of you in person. If there are follow up questions or needs there, you can get a hold of <UNK>tine <UNK> to continue to answer the questions that you might have as you sort through your models and analyses. So with that, thank you very much.

2015_CTB

2016

WWE

WWE #Those are big questions, Rob, obviously, with no clear answers. Look, our view when these transactions happen, and again whether they're happening in the US or any other market we're in, what's really important to us is there is a vibrant kind of competitive market for content. And as long as that exists, to your latter point, our numbers are our numbers. They're pretty powerful and it's public and everybody can see them. Everybody can see the engagement metrics, everyone can see the consumption metrics, everybody can see the ratings numbers. And again, I'm just speaking about the US and India, UK and Germany. So as long as the market dynamics are such that that it's competitive, we feel that we bring a ton of value to a partner when we license content to them and therefore, we feel that we'll do well economically. I think the last ---+ you had a middle point there about the value of content and you rightfully point it out. In some cases, we're talking about aggregators of content coming together, or aggregators of content coming together with distributors of content. We're fundamentally different in the value chain. We are the creators and owners of the content. And as creators and owners, back to those three platforms, we think that gives us a pretty good position, whether we're distributing on third-party AVOD platforms or our O&Os, whether we're distributing within a bundle. And whether that bundle is a traditional facilities based bundler or a virtual bundler, we think we bring value there. Or whether we're going direct to consumer. So the fact that we create it and own it obviously is a super differentiating factor compared to a lot of the people you mentioned in terms of coming together, which for the most part tend to be aggregators and then distributors. So we feel good about where we stand. Yes, I mean, we like to think of our ---+ when we license content to any partner around the world, so whether it's BSkyB in the UK or Fox in Latin America or OSN in the Middle East or Zee in India, soon to be Sony, it looks like, but whatever partner, we tend to look at it as more than just we're going to license your content and then step away. We've never done business like that. Actually the way we view it is we're going to license the content and then we're going to work with you really, really closely to make it as valuable to you as possible. Obviously, we benefit as well. But the real focus is working with our partners to make them as successful as possible utilizing the content. So that's what we do with NBCU. Look, I think it's fair to say over the last three years ---+ and we've had a long partnership with NBCU or its predecessor organizations, but <UNK> mentioned the 50 blue chip advertisers over the last two years. We think that's a little bit of a sea change and I think it reflects probably on both our parts an even stronger commitment to working together to accomplish what I said before, which is driving up their business. So we think they're really excited about what the last two years have brought; we are too. We're really happy for them. And obviously that accrues to our benefit eventually, we think, but the partnership has been great. As far as theme parks and so on, as you know we're going to be in Orlando at the Citrus Bowl next year for WrestleMania. As you know it's more than just a one-day event, it's kind of a weeklong extravaganza. So my guess is, stay tuned; we'll probably mention a few things about what we're doing with NBC Universal around that. I'll quote <UNK>, we're open for business. I mean I don't know, a better way to say. That's kind of the way we view everything, is what's best for the brand long-term and short-term. So yes, so the short answer to your question is, of course, we would. Rob if I didn't know you better, I would assume that you were applying for a job in our subscription marketing group. Because I think some of those ideas I have seen on lists somewhere. So, look I said it before, so get out of the in-the-moment financial results or the operation of the network, which is great, like as you mentioned, it's our second biggest business and we got there in two years, it's our second most profitable business and it's our fastest growing business so far in 2016. So that feels good. Strategically over the long-term, and you touched on it, we think the network becomes the hub of how we interact and connect with our most-passionate fans. And you mentioned a few of the examples and so the answer is yes, we're definitely considering that. And then also as I mentioned strategically, it also gives us a direct connection to those fans around the world to any broadband enabled home, where you can watch it on the big screen, little screen, cast it to the big screen, however you choose to do it. So, strategically those are the real drivers of value we believe in the network. But a lot of the examples you brought out, you're going to see things like that. Again I'm not going to make news, but here in the next few months, I'm sure you'll see something and go, oh yeah, that's exactly what I was thinking might make sense. But we're going to do it smartly, and we'll do it iteratively. What we don't want to do is confuse our audience. The product itself is the experience, and the simplicity of it is really important, so we want to be smart about it. But I think you'll see some experimentation around the topics that you mentioned. Yes. I think the reason we give a range around on the guide gets to the point of normal variability. It's really hard to point it out precisely. So we kind of look at historical levels, and use that to inform our model for projections. But we know there is variability, that's why we put a range around it. About the specificity of your question, I would rather stay away, out of that, because I would be guessing more than providing the answer, so I'll leave it at that. That's right. We had people talk us about, well, was the attraction maybe not what you expected, is it the political season that's kind of drowning out people's attention, is it the Olympics back in August. So everybody has got theories, it's hard to kind of point it out, which is why I want to stay away from kind of attributing to any of those. It's more just based on the data. Yes. Look, they've been a great partner with us. And their proficiency is a big part of the success of WWE Network. That's why we're the fifth largest SVOD service coming out of the US. And so what they do, they do well and they've been a big partner. As far as the Disney investment, we'll just let our eyes kind of evaluate over time like we would do with any service provider and we'll see how well the work gets done, how fast, how good it is, and then we'll just judge using those metrics what we do moving forward. So that's kind of our perspective on BAM. I think the bundling question is outside of BAM. I think that becomes more of a question, does it make sense. And whenever we look at ---+ and we have looked at, <UNK> ---+ bundling opportunities in a variety of different ways, there's three things we look at. Number one, the economics; do we think they'll be accretive. Number two, the customer information. As I mentioned before, every day we get more global, more digital and more direct-to-consumer and we love the direct-to-consumer businesses that we have, not just the network, but our e-commerce business. Our O&O business, our selling of tickets direct-to-consumer ---+ through third parties, but where we have the customer information. So economics, number one, unbundling; number two, customer information; and number three being the viewership and engagement metrics. We are so much smarter about the content on WWE Network because we can measure the engagement in so many different ways, not average viewers, not a ratings metric, but real deep metrics: start/stop times, repeatability of the content, viewership to completion. That really gives us more insight into the success of the content than we get on any other piece of content we do. So, economics, customer information and engagement data. If we could get offers where we think that makes sense, yes, bundles could definitely be a possibility. Thank you everyone. We appreciate you listening to the call today. If you have any questions, don't hesitate to contact us. Thank you.

2016_WWE

2017

HE

HE #One of our favorite things to talk about, actually. Thanks, <UNK>. So, <UNK>, I think you know that we continually run that analysis, and our Boards have actually charged us with doing so. But in that analysis, there's many, many factors that go into that discussion, including the fact that Hawaii is a state that has a stakeholder statute. And so, we have to make sure that we consider all factors, not just the financial factors, but community-based factors in those analyses. Having said that, we will continue to look at it, going forward. You probably know that some of the factors, obviously, have shifted recently with the run in the banks. That would do things like increase the tax bill for the Bank on a spin. With interest rates rising, financing costs for an acquirer are going to be changing. So, there's a multitude of those of factors that we continue to look at, and our current view is that we have not seen a compelling case for our shareholders to move ahead with any different structure in the Company. Thank you, <UNK>. It's been an honor and a privilege. Thanks, <UNK>. Hi. Very kind. Thank you. No, if you actually go back and look at the utility balance sheet, it has always been at around the 58% level. And if we look in the appendix slides, you will see that that matches up with the approved capital structure for the utility that has existed for many years in our rate case. So, you'll see about 56% common, about a 1% preferred. You get close to 58%. But that's the utility. We may have confused you when we talked about the higher equity capitalization of the Holding Company, owing to the receipt of the termination fee and the release of the special dividend fund in July of last year on the breakage of the transactions. That in turn allowed us to pay down all short-term debt. We eliminated about $80 million of commercial paper. Hence, the equity capitalization level on a consolidated basis went up by six or seven points. That's why we're HEI level, we're about 56% now, but the utility's balance sheet, as <UNK> said, has been static for quite so many years. Good observation. We don't need equity even our dividend reinvestment plan equity, which we ordinarily receive as perhaps a 1% dilution. So, no equity in 2017 and 2018. We may even be able to go a little longer. It just really depends on the pace and level of CapEx approvals that the utility's able to execute. What will happen with time is like a seesaw, that equity capitalization will reduce a little bit as debt comes in in the near term to finance the activities. We typically run at the Holding Company level about 50% equity. Right now, we're quote, unquote, over-equitized at about 56%, due to what I said earlier about the release of the special dividend fund and the receipt of the merger termination fee. $30 million. We closed it in early December, actually, $30 million. That covers three quarters, and then we switched to open market purchases in the fourth quarter. We've been running $35 million to $40 million on a regular basis. As <UNK> said, last year, $30 million, three quarters. Yes, so with the reduction in the short-term debt, we have about $300 million of LTD outstanding, and the consolidated cost of that LTD is running just south of 3% pretax. Modest. As you know, there has been some reform here. We're still going through a docket to see the next phase of rooftop private solar in our state. But things are moving along. The Company is working with stakeholders to see what's possible. We have a lot of private solar in our PSIP, as you will see. It's really coming up with regulatory programs that will benefit all customers. I'll add that at the bottom of page 3, we've got 15% of customers that have solar PV. We're up to just south of 600 megawatts there. Very substantial for a grid of our size. You may or may not remember that it was a reform, as <UNK> calls it, in October of 2015, where the net energy metering program, as it was constituted, was closed, and limits were set, and a mechanism that changed the pricing for the purchase of those kilowatt hours was changed and reduced, as well. And it was a cap put on the program. So, <UNK>'s really referring to the go-forward, what happens to that program next as the program has been subscribed and changed already. Forgive me if I ---+ I thought that's what you were asking. In the future, there's aspects for more private solar, but maybe more controllability with advanced inverters, once the smart grid is actually out there, the two-way communications for distributed generation, how it all fits in with our demand-response programs, as well. So, it's a wholly-integrated plan to get to 100% renewable, not focused specifically on any specific resource. I'd add that the power supply improvement plan that we filed does have significant room for increased private solar going forward into the future. And we do expect that that will continue to be a major component of renewable generation in Hawaii. Thanks. Before you get off, let me just go back and talk a little bit about your question on Holding Company debt and interest deductibility, because as you know, taxes are done on a consolidated basis. So, in our case, you also have to consider the fact that we do have the Bank, which has significant interest income, and of course that ---+ those tax discussions have been talking about netting interest income and interest expense. I just want to make sure you don't lose sight of that piece of it, as well. Hi, <UNK>. All right. We continued throughout the year to opportunistically get out of some of the exposures. So, we continued. Probably 4Q was about $10 million of additional. So, for the year-end total, just north of $90 million. On a profitable basis. We got out of all of them in 2016. All were profitable, and we got out above our basis. Selectively, we don't think the decline will be anything like what you saw. We feel pretty good about where we are with what's left. There are always prunings of the portfolio as we look at the relative risk and opportunity in the exposures, and the timing of that against new originations. So, you may see some volatility in the quarter, but not a big shift. No. We're through the conversion. We're into ongoing production mode. We're realizing the ongoing savings on a run rate basis against where we were before. So, we have the ongoing normal course upgrades that we'll do as the platform evolves, but we're through that implementation. We always have year-end true-ups on performance compensation that comes in based on how the year is for all of our production teams and that. There's a little bit of that in there. Otherwise, the fourth quarter didn't have any meaningful one-time items. Yes. We are baselining one more ---+ one bump this year on the timing. That's it. Otherwise, we tend to not do our own. We use external forecasters and guys like you to tell us what's going to happen, because if we were smart enough about it, we'd have your job. So, we're looking at one more bump during the year on the Fed rate. It was a November pay down. We'll see a little of that ripple through a little bit more on the run rate. We're expecting a slight decline in production that will affect the split. We haven't yet gotten our heads around where it's going to affect more, the jumbo or the saleable. The way we see it, rolling through, we tend to sell about 40% of our production as we work to remix the book. We're holding that flat now as we go into the year, but on lower production, so we'll see a decline in the mortgage banking income. Thanks, <UNK>. I'm not going to be far from American. That's for sure. I'll start, <UNK>. Thank you very much for your wishes. I'll start, referring to slide 25 in the deck, which explains where we are vis-a-vis the allowed, and what, as it were, fixable of the possible matter from the rate cases. We're very early on from the rate cases, so it's really hard to describe or prejudge any of those matters that might actually occur. But we tried to anticipate your question by showing you what is possible here, and I could probably leave it at that by showing you eight or so elements of where we stand from the 9.8%. As you know, we printed the 8.1%. So, there's quite a gap, 170 basis points. This decomposition provides you a sense of what's possible and what is not possible, based on the current structure. The utility team is fine with that explanation. Yes. Looking at items one, two and three, the possible as it were, the non-recovery items ---+ sorry, the impossible items are pictured on the left-hand side; non-recovery of incentive comp, short-term interest rate on the outstanding RBA balance, that was already fixed in a prior proceeding. And this matter that we've actually been spending quite a lot of time on so far is the RAM revenue accrual delay, I'll call it, the June 1. So, those are the items on the order of 50 basis points here, identified in those three, labeled as such, 1, 2, 3, that are currently hard-wired, as it were. I'll call it that. Proceeding to the right-hand side, the plant add-ons over the RAM cap are applied for, and can be fixed. The O&M in excess of the test year RAM, the pension assets there trued-up to test-year levels are a very important item for us, because (technical difficulty) for six years now. Quite a long time, and so forth. So, that gives you a flavor here. I hope the slide is helpful in that regard. So, the right-hand side are really the things that the mandatory three-year rate case basically true-up is meant to address. So, these are the things that happen during ---+ in between a rate case, when we only have the RAM-type adjustment mechanisms, ECAT going, and so these things can be addressed in rate cases. That's contained here. Can I speak, <UNK>. Sure. On the ROE guidance, we didn't give any guidance, because there's a lot of uncertainty with our impending rate cases. We're going through that process now. It's very difficult to determine what that ROE would be. Well, let me just correct you on one thing, <UNK>, is that, remember on that down $0.10, $0.13 of that is the difference in that RAM accrual, the change in the timing on the RAM accrual. It does impact our ROE calculations. Right. It does. But the point is that, given ---+ You're quite right. I would say that, however, given the puts and takes that could happen in the rate case, we didn't want to go further and speculate what could be the outcomes of the rate case that could. I could confirm that the adjustment of the $0.13 puts it in the 7% range, right. But what I can't ---+ Just to balance the answer, I can confirm that that would be the negative effect. What we don't know is, what are the other adjustable items coming out of the rate case. That's the imprecision right now. Thanks, <UNK>.

2017_HE

2015

CATY

CATY #Thank you, <UNK>, and good afternoon, everyone. Welcome to our 2015 second-quarter earnings conference call. This afternoon, we reported net income of $45.2 million for the second quarter of 2015, a 28.8% increase when compared to a net income of $35.1 million for the second quarter of 2014. Diluted earnings per share increased 27.3% to $0.56 for second quarter of 2015, compared to $0.44 per share for the same quarter a year ago. In the second quarter 2015, we had [started] loan growth of $277 million, representing a 12% on an annualized basis. This brings our June 30, 2015 total loan balance to $9.5 billion. The driver of the increase came from CRE loans, which increased by $186 million, while residential mortgages grew by $113 million, and construction loans by $25 million. For the six months ended June 30, 2015, our loans increased $588 million, or 13.2% annualized, compared to an increase of $481 million, or 11.9% annualized, for the six months ended June 30, 2014. We continue to see our loan growth in 2015 in the range of at least 10%. For the second quarter of 2015, our total deposits increased $226 million to $9.3 billion. This represents an increase of 2.5% quarter-over-quarter, or 10% of an annualized basis. Our core deposits increased by $220 million, or 8.6% on an annual basis from December 31, 2014. In January, we announced a signing of the merger agreement with Asia Bancshares. We have received all required bank regulatory approvals, and on July 17, Asia Bancshares' shareholders approved the merger with Cathay. The closing is scheduled for July 31, 2015. We are looking forward to a completion of the merger. We expect a smooth integration of the two banks, with the retention of key officers and business to be high. The merger will further strengthen our Hong Kong presence ---+ New York presence, having a total of 12 branches in the city. It will also open a new market for us near Washington DC. On June 26, we released summary results of our 2015 Dodd-Frank Act stress testing. Under this hypothetical severely adverse economic scenario, the minimum common equity Tier 1 ratio is projected to be 11.5%. The minimum Tier 1 risk-based ratio is projected to be 12.6%. The minimum total risk-based capital ratio is projected to be 13.9%. The minimum Tier 1 leverage ratio is projected to be 10.7%. The complete summary is available on our Company website. We are pleased to note that under the hypothetical severely adverse economic scenario, all our projected capital ratios significantly exceed the regulatory minimums for adequately capitalized financial institutions. They will serve to support our Company's crucial growth and our strong dividend policy. With that, I will turn the floor over to our Executive Vice President and CFO <UNK> <UNK> to discuss the second-quarter results in more detail. Thank you, <UNK>, and good afternoon, everyone. For the second quarter, we announced net income of $45.2 million, or $0.56 per share. Our net interest margin was 3.51% in the second quarter of 2015, compared to 3.41% in the first quarter of 2015, and 3.37% for the second quarter of 2014. In the second quarter 2015, interest recoveries and prepayment penalties added 9 basis points to the net interest margin versus 4 basis points in the first quarter of 2015. We also received a special dividend from the Federal Home Loan Bank, which increased the net interest margin by 4 basis points in the second quarter. Non-interest income during the second quarter 2015 was $9 million, excluding $3.3 million of net security losses. Non-interest expense increased by $5.1 million, or 11.9%, to $47.6 million in the second quarter of 2015, compared to $42.5 million in the same quarter a year ago. The increase was mainly due to a $4.5 million increase in amortization of investments in affordable housing and alternative energy partnerships, a $1.1 million in the amount of employee salaries and benefits expense, and a $1 million increase in professional services expense, partially offset by a $1.4 million decrease in OREO expense in the second quarter of 2015. We expect amortization of alternative energy partnerships to increase from $3 million in the second quarter to between $11 million and $12 million a quarter in the second half of 2015. The conversion of Asia Bank to Cathay's data processing system is scheduled for August 24. We expect to incur approximately $2.5 million in merger and integration charges during the third quarter. Asia Bank's loans at March 31, 2015 were $423 million, with an average yield of 5.26%, and deposits were $442 million. We expect to issue approximately 2.6 million shares for the acquisition of Asia Bancshares based on the expected final stock/cash mix of 55% stock and 45% cash. The effective tax rate for the second quarter of 2015 was 17.7%, which includes a catch-up adjustment to reflect the lower effective tax rate for the full year 2015, resulting from the investment in the Renewable Energy Tax Credit Fund in early April. As a result of the investment in the Renewable Energy Tax Fund, we expect our effective tax rate for the full year 2015 will be around 27.7%. At June 30, 2015, our Tier 1 leverage capital ratio remained flat at 12.99%, our Tier 1 risk-based capital ratio decreased to 14.53% and our total risk-based capital ratio decreased to 15.81% as compared to December 31, 2014. Our ratios significantly exceeded well-capitalized minimum ratios under all the regulatory guidelines. At June 30, 2015, our common equity Tier 1 capital ratio was 13.39%. Net charge-offs for the second quarter of 2015 were $0.5 million, compared to net charge-offs of $331,000 in the first quarter of 2015 and net recoveries of $3.7 million in the same quarter a year ago. Our gross loan loss recoveries during the second quarter of 2015 were $2.2 million and our gross charge-offs were $2.7 million. Our loan loss reversal was $2.2 million for the second quarter of 2015 compared to $5 million for the first quarter of 2015 and $3.7 million for the second quarter of 2014. Our nonaccrual loans decreased by 17.8%, or $14.3 million, during the second quarter to $66.1 million, or 0.7% of period-end loans as compared to the first quarter of 2015. Thank you, <UNK>. We will now proceed to the question-and-answer portion of the call. Aaron, this is <UNK> <UNK>. We had a couple of promotions in the first half of the year, which had limited success. They focused mainly on just business accounts and things like that, but we have ---+ starting in July, we will be running a two-month CD promotion, and so far in just 10 days, it's generating quite a bit of new funds. So we are paying for two-year money 1.3%, and then one year, I believe, is about 1%. So right now our loan-to-deposit ratio with that promotion is closer to 99%, whereas we historically have been at 100% loan-to-deposit ratio. So once again, we have another eight weeks or six weeks to go on this special CD promotion, and we would expect to, if we get strong demand, we'll let the loan-to-deposit ratio drift down. And then on the margin, Asia Bank should at about 2 basis points to our margin. Their loan yield is 5.26% and then they only have about $4 million in securities, and then their deposit costs are similar to us. They actually have a higher proportion of checking accounts than we do. So once again Asia will add a couple basis points to the margin and then we were buying 15-year MBS, particularly in late May and June, so we'll get the full-quarter impact of that. So I've stopped giving guidance on the NIM itself, but I'm optimistic. C&I balance. C&I, yes. We had a couple large payoffs---+ C&I loans, I have to admit is a little bit difficult to increase and originate in the second quarter. In the second quarter, we looked at our payoffs and it's a little more substantial than the first quarter, and as <UNK> mentioned, a couple of loans being paid off. My expectation is that C&I loans continue to be sluggish and there are several reasons for that. One is that new business formation is very hard to come by and roughly 60% of our portfolio is [25] related. You might be aware or might have heard about this before, that China export has slowed down about 10% in the second quarter. That has a little bit to do with that. On the other hand, I have seen some projections that in the second half of the year, exports should pick up a little bit in China, [because] the holiday season is at the end of the year. So hopefully the third and fourth quarters, we'll see more increases in C&I loans, but overall C&I loans are very sluggish Yes. It's between $11 million to $12 million per quarter. We're still funding ---+ it takes five months to fund into this particular investment so we don't have the final numbers. We don't know till September and then we'll update our amortization, but this is the ballpark. Meanwhile, that higher amortization continues to be offset by the 27.7% effective tax rate so it's a very similar situation than one of our competitors announced last week, where they have a timing issue as well on the amortization It was about [$1.1 million]. Probably. We're thinking without giving ---+ well ---+ Let's say, that, as we mentioned, that our capital ratios are very strong and the earnings are coming in as expected, so there's room for improvement Certainly over the 30%, and we know some of the banks in Southern California, they are paying 50%, say even 60% of current year's earnings. So if our stock ---+ depending on where our stock price is, we'll do a mix of both stock buyback as well as higher dividend increases. It's something we'll look at in the third quarter, starting in the third quarter. <UNK>, I get the rate lock report every Friday, and we're rate locking between $15 million and $20 million a week, and so it's a very strong pipeline. We seem to have found a niche where our loans to non-US resident borrowers, as well as investments loans for investment property, that's proven to be very popular. There's been a fair amount of payoffs, as well, but in terms of the rate of payoffs, it's less than conforming mortgage because almost our whole portfolio is made up of Chinese borrowers and so many of the loans are not conforming loans. So we would ---+ our goal is we want to continue to increase the mix of our loans from residential mortgage. Back in the second quarter last year, we stopped originating 30-year fixed-rate mortgages. The bulk of our new mortgages are either 5-1 ARMs or 15-year mortgages, fixed-rate mortgages. So we feel very comfortable with continuing to grow those, and now with the interest rates going up in the last six weeks, we're getting very low pressure on new originations in terms of lowering our overall portfolio yield for residential mortgage. <UNK>, this is <UNK> <UNK>. Our guidance is at least 10% growth for the rest of the year. And that is because there is a lot of volatility in the market and it's really difficult to make a very blanket statement that it's going to be 13% or 12%. At least 10% is something that we are comfortable with. <UNK>, this is <UNK> <UNK>. Our first preference is we want to buy back shares that were issued through stock option exercises. So that's not that ---+ not that we can find those exact shares out in the market but in terms of dollar amount. And then we would ---+ for Asia, originally it was targeted to be 55% cash, 45% stock deal, but because our stock prices traded above the collar, the Asia shareholders are mainly electing stock. So we're going to issue more stock than we originally thought. So we don't have an issue with later on buying back most of those shares. They are just 15-year, [3%]s, so they're probably right at [2.1%] or something like that. It's higher than what our average overall portfolio would yield. <UNK>, the pricing has been pretty stable for the last, I would say, six months or so. And for six-, five-year loans, we are looking at somewhere around [4.5] to [4.75] and for floating typically it's between prime plus prime and one-half in the range. With a floor, right. But the floor is not as meaningful as before (laughter). Above the 3.4%. Right. I'd be happy if we came in at 3.4%. Yes. It's $0.08. Our effective tax rate will go up 1%, so if we're 27.7%, it might go up to 28.7%. We're thinking of doing a similar amount but now that we know the accounting, it's going to be much smoother. Because if we sign a deal, let's say, in November, all of the amortization in 2016 will be spread out through the year rather than ---+ and the tax rate will be constant in 2016. So it's a learning process for us, but we're working on a second deal. Yes. Yes. We had ---+ we look at the overall trend in net income and so because we expect to be higher than our internal budget, and therefore we would have higher bonus expense, we accrued all of that, that extra bonus, for exceeding the budget, we accrued that in the second quarter. So we're $[1.4] million higher than our normal bonus accrual in Q2. Then we also accrued roughly $0.5 million of integration charges for Asia, mainly for legal fees in Q2. No. All of the amortization is, more or less, it's in this year. No. It's because our pre-tax income is going to go up by a certain percentage. So these tax credits are a fixed dollar amount. So they're going to make up a smaller percentage of the pre-tax income No. We think we're in a pretty good position. We have about $115 million of treasuries that are maturing here at the end of July and we'll probably just pay off some short-term borrowings with that. And then we have some more in March of next year, treasuries that, since we're trying to position for higher interest rates, so we're not going to be very active in terms of buying a lot of new securities. On the OREO gains, we have one that will generate a few million, but we don't know the timing. It's listed for sale but it's a few million. And then on the reserves, our reserves are still higher than most banks in Southern California, so we're okay with just having the loan growth absorb any reserve releases. Thank you again for joining us for this call and we will look forward to talking with you at our next quarterly earnings release date. Thank you.

2015_CATY

2016

ADI

ADI #We've said publicly that we are committed to generating over $4 of EPS by 2020. We remain committed to that. And when we first offered that target to the investor community back in 2014, we said that we expected our revenue, our top line, to grow at the rate of 2 to 3 times GDP, whatever that is. And we remain optimistic about that. We're investing at a level, in terms of R&D and field ---+ customer engagement. But ---+ and given what we see in terms of the design activity, the customer engagement activity, we remain committed to that top line target. Another component of, obviously, being able to get towards the EPS target over time is to do careful M&A. And so that is the mix, and we are committed to our targets. We believe in the growth story. And as I said, we will use our balance sheet wisely, to get some more high performance technology that will enable the Company to grow at an even greater rate over time. As far as just the acquisition measures, we use ---+ there's probably 15 of them that we use. Obviously, accretion plays a factor in it. We look at the relative valuations of the cash flow of the business that we are looking at, to determine whether we're paying a good price for it. We want businesses that grow, and that help us drive our growth faster than we are growing today. So that's a key component that we believe that can happen. And obviously, we think we're looking for things where we can get synergies. Sometimes that's cost, sometimes it's cost and revenue. And so those are things that influence us. Sometimes, when we're doing tuck-ins like SNAP Sensor, which we talked about in the prepared remarks, there isn't much in terms of financials to hang your hat on in the early stages. And so then, it really comes down to whether or not the technology really was going to make a difference in our customers' application, and ultimately the user experience. And that tends to rule the day, when it comes to those tuck-ins. Yes, it's integrating all the time. We're developing, we're moving in more and more to a systems level solution, and so that requires us to have more and more technology. Some of which we do acquire, a lot of which we actually build internally. Yes, I think what we acquire depends very much on the type of segment we're addressing. The reason we bought SNAP Sensor was to help us move up the stack to make our solution more complete. We've got a very strong DSP high performance signal processing technology platform and product base, onto which we needed to add some algorithmic value in that particular imaging application. So yes, what we acquire, and what customers are asking us to do, very much is application and market segment dependent. No, I think they are pretty much the same. They are cautiously optimistic. The macro has held in there. The order flow has been good. Customers think they're going to ---+ I think in aggregate, think they're going to see modest growth this year. And ---+ but they are obviously very cautious. They're keeping their inventory levels lean. We see, obviously, that at the [Disty] level, as well. So that's ---+ I think it's pretty consistent. It's been pretty consistent through the whole year, really. I don't know that it's significant, but we had 138 days of inventory, and we want to get that level down. And we felt like we should address it now rather than wait. I would ---+ like I said in the prior question ---+ or answer to the prior question, I think a lot of the inventory is related to product that was manufactured in foundry. But nevertheless, we've got to work all of the levers to get the inventories to where we want them to be, and this seemed like an appropriate place to pull it down. The coms one doesn't influence us a ton, because there isn't much of that that gets done in internal foundries ---+ or internal fabs. Really, it's in the industrial space, which is plugging along at a low growth rate at this point. So it seemed like we weren't taking a big risk by adjusting the production there. I would say that I think it's a one-quarter event. When you take down inventory levels, and you take down the utilization rates, generally, you shut the factory down. And so we'll be taking, I think, on average, 2 weeks of shutdown in our internal fabs. I would suspect that we will be back to not doing that in the fourth quarter, and so utilization should come back up again in the fourth quarter. Yes, I probably have to avoid these kind of pricing things. It's not to the level of the prior socket, let's put it that way. <UNK>e.

2016_ADI

2015

WSO

WSO #The first place, I think we are going to become better inventory managers. We have used inventory which is using our balance sheet to help develop market share. I think that has been successful. I think now our focus will be to continue that but to increase the multiple turns of the inventory which will thereby increase the cash flow. And in terms of using that cash flow, we will always, Sam, I think you are asking are we going to make any deals. We haven't made a deal in three years and we are still growing at record levels. But if they come along we will certainly have the balance sheet to finance almost anything we want. I mean this Company has been growing at 20% for the last five years and most of that time was without any deals. <UNK>. There's a lot of things that go into our non-equipment sales as you recognize. This is where we have the 900+ vendors and a lot of small buckets of sales that we do. And basically it was a little bit of a mixed bag. We had some good upticks as far as pricing on refrigerant but demand was slow in refrigerant. We had good demand on copper and copper products but the price went down. So when you wrap it all up, there is parts of it that were growing nicely and parts of it that just didn't grow and the balance was almost a flat quarter. But also in the end, our business is primarily the replacement business. We have a very small part of it in new construction. New construction takes a lot of that non-equipment supply. So it is a combination of those two things. That is correct. Well, who wants to take that, <UNK> or <UNK>. I'm going to give you a quick yes but let them explain it. We have a very simple cost of sales. I mean for the most part it is product cost versus what we can sell it for, so commission programs, technology investments, discipline, the ability to get price for service, things like that have always been the blocking and tackling that can keep going. There is no reason to say that it shouldn't keep going. On the technology side, that is where I think we are still very young in carrying out strategies to improve it further. And young meaning some of the investments have just been made and deployed into the field. So we certainly think there is the ability to keep going and it has been a great record over the last three or four years, not just the quarter. This is <UNK>. We had what we consider to be an expected sellthrough of a lot of our 13 SEER product. We still have some inventory obviously left but pretty much everything went fortunately in this case, the way everybody had planned it to go. As of yet we have seen the price of the 14 SEER holding its own and not compressing the 13 SEER. We have taken a wait-and-see attitude on that as people start depleting their 13 SEER inventory. At that point we may or may not see some compression. But as of right now, none. We do not see ---+ let me put it a different way. We feel good about our 20% expectations. I mean we feel good about our guidance. I mean the guidance is between 16 and 20 and we wouldn't put it out there unless we felt good about it and July is strong, the start of July is strong. This whole 13 SEER thing is such a short-term thing that I don't focus on it too much and so I can't answer that but maybe <UNK> can. I don't think we spent a lot of time looking at the psychology of why the 13 SEER has gone to plan. It pretty much has rolled out as we see a lot of contractors are moving up and stepping up and adopting the 14 SEER and just going with it and forgoing a little bit of this 13 SEER. It is very short term. We sell more equipment than anybody in the industry and we have what they need or want whether it is 13, 14, whatever SEER they want, we have it. That is our advantage. We are not a factory, we buy it and we sell it. The factories have to think more about what you are referring to. I assume he does. I assume they do. It is a very short-term story. Well, let's say that ---+ probably I am guessing now what percentage of our employees in Miami speak Spanish but I would say it is over 50% and they would be delighted. But like you said, 11 million inhabitants of Cuba versus I think we serve 550 million through the Americas, it is nice and if the government allows us, we will be there. It is a good product. We like it a lot and we are very active in it. Because we are the largest distributor in the Americas, the manufacturers of these products come from Asia and they come here because we can give them more bang for the buck. Perhaps <UNK> can fill you in on some of the important details of that. It is not only VRF, <UNK>, but it is also the ductless version of it, the multi-split that we are starting to see move into a lot of other applications. For the first half, it continues a torrid growth, I just wish it was a larger percentage of the total sales of Watsco. It will be. At some point it is going to be material and we're going to spend more time talking about VRF and our duct free splits than we talked about today on this 13 SEER versus 14 SEER issue. Are the duct free splits. Actually with Watsco, it is fairly close. Our split is more on the duct free than it is on the VRF but the VRF is growing at a faster rate than the duct free. My response here is going to be more philosophic than it is going to be factual. Yes, I think it has been evolutionary but it has been a rapid evolution as you know in the last several years and of course my hope and dream is that there is a tipping point where it starts accelerating even faster. But also you have to remember all of the major US OEMs have, with the exception of one, have associated themselves with an Asian manufacturer to bring those products into the United States. It will have growing attention in the US market. Yes, it is well over 50% of our business. It should be because the 13 SEER in the majority of our markets is phased out. The only place where we will have access to 13 SEER is going to be in the upper Midwest and the Northeast right now. Naturally it is going to increase with us. Dave, I would have to do the math on that. That is a great question, Dave, and I would say that we are at the beginning. We now have provided apps to our contractor customers which they can use to be very efficient in their work, they can determine what models look like, what their bill of materials are, what their use it for diagnostic purposes, order what they need on their smartphone from us. And those apps are being revisited and improved constantly. We have what we call business intelligence, internal use of data. We now have real-time data in hand of many, many people in our organization so they can see how they are doing, how they can do better. We also have e-commerce. It is just emerging all the way across hopefully to cover our 577 locations because e-commerce is a wonderful way for our customers to do business with us. Then we also have sites that we are experimenting with consumers to see what their appetite is for air-conditioning on consumer sites. But this is all just beginning. As I say, I don't think our investment is going to get any less. I think it is going to grow and I think that is good for the shareholders long-term. We have the scale to be able to do this and so far we have been able to do that and still report record performance. We have that data but we are not ready to provide that. The first part of the question is it is all of those things. And secondly, we will be particularly in the technology area as we find talented people, we will be adding them and I expect our talent in technology will grow. As I said, I still think it is beginning. We have 150 more or less in that world and that should grow. I'm not going to get into that detail. I can just tell you revenues got stronger toward the end of June and they are continuing in July. Yes, we had one of those. Well, <UNK>, I'm going to give you the long ---+ look, over the last 25 years, our total shareholder return compounded growth rate was 20%. 25 years at 20% while we have been in the distribution business. The last five years has been 20% and I don't believe that we have to be buying any companies to continue that growth rate. Now that doesn't mean that if a large one doesn't come along and we like the business that we won't pursue it. We have demonstrated that we can grow for 25 years at a very high rate. So I am not one to ---+ and I know you do, you feel that we have to be making deals to keep our growth rate up and I don't believe that. I believe you demonstrated just the opposite. I know you like Lennox, I don't see what they are buying that bumped up their earnings, they are doing it internally. You are asking me are we getting growth from our geographic position versus our technology. I think it is both. Yes, I think we are gaining share, market growth and gaining share. We are pretty good at gaining share. <UNK>, I would just add to that, I would say our markets, the markets we participate in and do so well in add to the stability of the Company. Being in the Sun Belt year after year is a great place to be from a stability point of view but we still have very demanding intense customers with intense competition. So the only way there can be outside growth is through market share gains. So I think the markets give stability performance give the market share that is what we have been doing so well at. If I can add one more thing to that and that is in the last three to five years, we have been able to state that we have gain market share because we had confidence that we were gaining market share. This year we haven't mentioned market share only from the viewpoint that there is so many unusual activities going on in the market share with the 13, 14 SEER transition that it has been hard for us to get a read on industry numbers. So we feel good about our performance but we only state what we know. Terrific. Thanks for listening and I look forward to the next conference call. Bye.

2015_WSO

2018

SFNC

SFNC #Good morning, everyone. My name is <UNK> <UNK>, and I serve as Investor Relations Officer of Simmons First National Corporation. We welcome you to our first quarter earnings teleconference and webcast. Joining me today are <UNK> <UNK>, Chairman and Chief Executive Officer; Bob <UNK>, Chief Financial Officer; <UNK> <UNK>, Chairman and CEO of Simmons Bank, one of our wholly owned bank subsidiaries; Barry Ledbetter, President of Southeast Division; and Matt <UNK>, President of Banking Enterprise. The purpose of this call is to discuss the information and data provided by the company in our quarterly earnings release issued yesterday and to discuss our company's outlook for the future. We will begin our discussion with prepared comments, followed by a question-and-answer session. We have invited institutional investors and analysts from the equity firms that provide research on our company to participate in the Q&A session. (Operator Instructions) A transcript of today's call, including our prepared remarks and the Q&A session, will be posted on our website, simmonsbank.com, under the Investor Relations tab. During today's call and in other disclosures and presentations made by the company, we may make certain forward-looking statements about our plans, goals, expectations, estimates and outlook. I'll remind you of the special cautionary notice regarding forward-looking statements and that certain matters discussed during this call may constitute forward-looking statements and may involve certain known and unknown risk, uncertainties and other factors which may cause actual results to be materially different from our current expectations, performance or estimates. For a list of certain risk associated with our business, please refer to the forward-looking information section of our earnings press release and the description of certain risk factors contained in our most recent Annual Report on Form 10-K, all as filed with the U.S. Securities and Exchange Commission. Forward-looking statements made by the company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The company undertakes no obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. Lastly, in this presentation, we will discuss certain GAAP and non-GAAP financial metrics. Please note that the reconciliations of those metrics are contained in our current report filed yesterday with the SEC on Form 8-K. Any references to non-GAAP core financial measures are intended to provide meaningful insight. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. I will now turn the call over to Mr. <UNK> <UNK>. Thank you, <UNK>, and welcome to our first quarter earnings conference call. In our press release issued yesterday, we reported net income of $51.3 million for the first quarter of 2018, an increase of $29.2 million or 132% compared to the same quarter last year. Diluted earnings per share were $0.55, an increase of $0.20 or 57.1% from the same period in 2017. Included in the first quarter earnings were $1.3 million in net after-tax merger-related and branch right-sizing costs. Excluding the impact of these items, the company's core earnings were $52.6 million for the first quarter of 2018, an increase of $30.1 million or 133.5% compared to the same period in 2017. Diluted core earnings per share were $0.57, an increase of $0.21 or 58.3% from the same period in 2017. Our loan balance at the end of the quarter was $11 billion, an increase of $208 million from the last quarter. During the quarter, our portfolio increased due to the following items: $126 million net increase in loans at Simmons Bank, which includes the Southwest Bank loans that merged into Simmons Bank as of February 20, 2018; $25 million of decrease in our liquidating portfolios of indirect lending and consumer finance; and $24 million decrease from seasonal agricultural loan payoffs. We also had an $82 million net increase in loans at Bank SNB. Our subsidiary bank's combined loan portfolio, which we define as loans approved and ready to close, was $458 million at the end of the quarter. On a consolidated basis, our concentration of construction and development loans was 80.9%, and our concentration of CRE loans was 268.7% at the end of the quarter. Our Dallas/Fort Worth, Denver, Nashville, Northwest Arkansas, Oklahoma City and St. Louis markets had exceptional loan growth during the first quarter. The company's net interest income for the first quarter of 2018 was $135 million, an 86.5% increase from the same period last year. Accretion income from acquired loans during the quarter was $11.3 million compared to $4.4 million in the same quarter last year. The accretion income in the first quarter was approximately $2.7 million more than our original estimates due to accelerated cash flows of acquired loans. Based on our cash flow projections, we expect total accretion for 2018 to be in the range of $25 million to $28 million with more accretion income during the first part of the year, and declining during the latter part of 2018. Our net interest margin for the quarter was 4.17%, which was up from 4.04% in the same period last year. The company's core net interest margin, which excludes the accretion, was 3.82% for the first quarter of 2018 compared to 3.80% in the same quarter of 2017. We have experienced non-time deposit growth of $3.9 billion over last year and $295 million from year-end related to acquisitions and internal growth. Total deposits at March 31 were $11.7 billion, an increase of $4.9 billion over last year and $564 million from year-end. Cost of interest-bearing deposits increased 41 basis points from the prior year and 11 basis points from the prior quarter. This increase was driven by higher cost of funds at the acquired banks and the pressure of increases on funding costs from the recent Fed rate hikes. We do expect deposit costs to continue to increase throughout the year. Our noninterest income for the quarter was $37.5 million, an increase of $7.5 million from the same quarter of 2017. We had increases in mortgage income, trust income, service charges and in fees due to our acquisition. Noninterest expense for the quarter was $98.1 million, while core noninterest expense for the quarter was $96.3 million. Incremental increases in all noninterest expense categories over the same period in 2017 are the result of our acquisitions over the last year. Our efficiency ratio for the quarter was 53.2%. At March 31, 2018, the allowance for loan losses for legacy loans was $47.2 million with an additional $407,000 allowance for acquired loans. The loan discount credit mark was $79.1 million for a total of $126.7 million of coverage. This equates total coverage ratio of 1.14% of gross loans. At the end of the first quarter, nonperforming assets were $77.7 million, down from $79 million at year-end. This balance was primarily made up of $47.7 million in nonperforming loans and $29.1 million in other real estate owned, which includes $8.1 million in closed bank branches held for sale. During the first quarter, our annualized net charge-offs to total loans were 24 basis points. Excluding credit card charge-offs, our annualized net charge-offs to total loans were 20 basis points. The provision for loss during the quarter was $9.2 million compared to $4.3 million during the same period last year. The larger provision was due to the increased loan migration during the quarter from the fourth quarter of 2017 acquisitions, which is consistent with previous guidance. In addition to very successful financial results in the first quarter, we have managed through other significant events. I'm pleased to announce that we successfully completed the conversion of Southwest Bank in February, and we're full steam ahead on the conversion for Bank SNB planned to be completed over Memorial Day weekend. We're excited about creating a stronger organization, and we're looking forward to continuing to serve our new customers. Also, during the first quarter, we completed the sale of certain deposits, loans and branch facilities related to the Heartland Bank held-for-sale assets and liabilities. We continue to explore liquidating options for the few remaining assets. We completed the 2-for-1 stock split effective February 8. In March, we announced our offering of $330 million in aggregate principal amount of subordinated notes due in 2028. We're expecting to use approximately $222 million of the net proceeds to repay outstanding indebtedness, and we'll use the remainder for general corporate purposes. Our capital position remains very strong. At quarter-end, the common stockholders' equity was $2.1 billion. Our book value per share was $22.86, an increase of 22.6% from the same period last year, while our tangible book value per share was $12.62, an increase of 2.9% from the same period last year. Asset growth due to subordinated debt offering caused tangible common equity to temporarily dip below 8%. With the anticipated payoff of approximately $104 million in parent company debt during the second and third quarters, along with earnings growth, this ratio will increase to a range of 8% to 9%, which reflects the normal operating range for the company. As a reminder, now that total assets have surpassed $10 billion, we'll be subject to the interchange rate cap that is established by the Durbin Amendment beginning July 1, 2018. We estimate that we will receive approximately $7 million less in debit card fees in 2018 and $14 million less in 2019 on a pretax basis. This concludes our prepared comments. We'll now take questions from our research analysts and institutional investors. And I'd like to ask the operator to please come back on the line and review the instructions and open the call for questions. Yes, I would say that range is probably $92 million to $94 million. As you can see, we had pretty significant organic growth in the first quarter. And if that continues for the rest of the year, our third and fourth quarters will be in the $92 million to $94 million range. Yes. Well, obviously, the acquisitions had a positive effect on our NIM, and we expect that to continue. We are expecting to fund up our ag lending, which ought to help the core NIM. However, we're still funding some construction loans that were obligated some 9 to 12 months ago at a little lower rate. So as those fund up, that'll be a negative pressure on that. And you've already mentioned the subdebt, which is also going to be maybe a couple of cents on that. We have been very conscious of converting our loan portfolio to as much variable rate as we possibly can. So we won't be susceptible to fixed rates over a period of time. We'll be more floating rates, which is very good. So we would still expect 3.70% to 3.80% to be a good long-term range because the real wildcard here is what is it going to cost for core deposits. We see significant pressure in the market today, taking those core deposit rates up higher than we really expected, and you saw the results of ours in the first quarter, and we would expect something similar to that to continue. We're very focused on core deposits as the main funding source for our continued growth. So we're going to be a player in that game. And we just don't know exactly what that effect is going to be for the rest of the year. We think it's just good growth from the new markets. We gave the new markets some new tools to use, and they were very effective. Our treasury management group has done a really good job of getting out in front of some of our commercial customers, bringing some of those deposits into the bank. We're back in the public funds business. With legacy Simmons, we had a 60% loan-to-deposit ratio. Those weren't quite as important to us, but we have great relationships, particularly in some of the rural communities that we serve. We're able to go back to those public entities now, being very successful there, and we'll continue that strategy through the rest of the year. Well, It's not likely that we'll come significantly below that because what we're trying to forecast are regular cash flows based on current payoffs and renewals. And generally, we see accelerated payoffs or some decisioning process that accelerates that cash flow. And that's what happened in the first quarter. So we ---+ based on what we know today, that $25 million to $28 million is reasonable. But I would say if it goes in any direction, it's going to exceed that and not be below that. Now the flip side of that is, as you saw in first quarter, as we experienced those increased cash flows from that migration, a lot of that additional accretion will end up in our provision. We've mentioned this from time to time that our current acquisitions have excellent quality loan portfolios. The marks on those portfolios are much less than we've experienced at Simmons when we had FDIC and Metropolitan bank marks. So if it's acceptable today as a mark, it's probably going to be very close to what the provision needs to be when we migrate those loans over to our legacy portfolio. So while our revenue may show a spike with regard to additional accretion, now that'll be offset by additional provision, generally speaking. Okay. Well, we're having some, I think, very healthy discussions right now with some potential merger partners. We've been very clear that it's not on our agenda in 2018 to close any other acquisitions. We're very focused on making sure that our integration of both Southwest Bank and Bank SNB go as planned. We're also very interested in sort of establishing a base performance level for Simmons in the third and fourth quarters. And that's our real focus for the rest of this year. I would say that our financial metrics on deals has not changed. We still believe an earn-back period of less than 3 years is appropriate. Any acquisition we do must be accretive to earnings from the get-go. So our financial metrics are still pretty solid and disciplined as you witnessed over the past 5 years. I don't think that's going to change. Well, here's what I can tell you. We hope the beta on the increase in our interest rates exceeds the beta on the increase in the deposit rates. That's how (multiple speakers). So I think we've positioned ourselves fairly well to make sure that, that happens. As you can see, our beta on deposits is close to 50%. Our beta on our NIM has been sort of the same, exceeding it by 1 basis point in the last quarter. So as long as we can keep that trend going up, sooner or later, it will balance out. But that's our objective is to keep both of them close to the same with loan rates exceeding deposit rates. Yes, and <UNK>, we've got almost 50% of the portfolio is variable rate or repricing in the near term. Also, we've moved the security portfolio to more variable rate. We have probably 15% ---+ almost 18% now that's variable rate. So we've been positioning for this over the last 12 months. And so, as <UNK> said, we're going to have deposit increases, but our goal is to offset that with the earning asset increase. I'm going to tackle the ---+ get to the tax cut. I don't think we believe that tax cuts have much of an effect on loan demand at this point. I think that still needs to be proved out for the rest of the year. As far as which markets, which segments are really strong today, I'm going to let Matt <UNK> address that issue. So Matt. Yes. I would say, we continue to see good, strong growth, as you can imagine, out of the DFW area, very strong, and then also Nashville, Middle Tennessee continues to do very well; St. Louis, Kansas City, and then also Northwest Arkansas showing really good growth over the last quarter. Your question about our approved, ready to close being down. I think that reflects, well, 2 things. We had a really big closing in March on just gross production. So a lot of build-up in the pipeline, but also, it just shows you the attention and focus on Southwest Bank's conversion. We've got that done and now that pipeline is reloading, but we're still very optimistic on overall loan growth. I think so. Yes, it ought to give you comfort that I'm going to let the accountant handle that question. So I'm going to turn over to Bob. Yes, <UNK>, we had a ---+ as we got into the trust side with the Southwest acquisition ---+ Southwest Bank acquisition, as we converted them from their trust accounting to our trust accounting system, there was a little difference in the accounting. So there was a onetime adjustment of about $600,000, a negative adjustment in the first quarter. Basically, this year, we'll have 11 months of income versus 12 months, and then we'll be on core. So it's really just part of the process. You have some things moving favorable, some negative, but as we converted, there was a difference in our trust accounting versus theirs. On the mortgage side, it was the opposite side. We had a decent mortgage revenue for the quarter, but the reason we were up about $700,000 of it or so was related to our mandatory delivery program we put in place. And as you get into that program, there's a fair value adjustment on the front end from how you do business going forward. So likewise, there was a $700,000 onetime benefit or so. So those 2 kind of offset each other, just happened to be relatively close in amount. But as <UNK> said, it's just an accounting change when you're going into a new line of business or a conversion from one trust system to another trust on the way we book them. So overall, both business lines were relatively close to their normal expectations from this quarter to the last quarter. <UNK>, I know you mentioned that maybe in response to another question and also kind of just your comment about deposit cost continuing to increase, can you just provide a little bit more color on what you're seeing in your markets and from a competition and pricing perspective. And just kind of how you guys are countering or reacting to what's taking place. Yes, I'll touch that, and then I'm going to ask <UNK> <UNK> to give a little more color on that. We're really seeing in the metro markets a real aggressive approach to deposit pricing, and that's in all segments. We're talking about money markets. We're talking about CDs. We're not by ourselves in focusing on deposit growth. That is a real premium in today's market as you probably know. And principally in the metro markets, it's a real issue. That's one real benefit to our footprint is that we have deposit sources outside of metro markets so that we don't get caught up fully in having to depend on those markets for our deposits. But <UNK> may want to talk a little more granularly about what we're seeing. <UNK>, that's exactly right on the metro markets, and I would tell you that, just anecdotally, we're seeing similar aggressive approaches for deposit acquisitions from some of the community banks now. You're back to seeing rate ads in the Sunday newspapers, which I think is a good indication that people are aggressively trying to acquire deposits. But we're seeing rates on CDs ---+ short-term and longer-term CDs running anywhere from 2% to the 2.40% range. We're seeing money market accounts also aggressively priced in newspaper rate ads in the 1.50% to 1.75% range. So we are seeing signs of more aggressive pricing by competition. Okay. Great. That's very helpful. And then the last one from me. I know you guys mentioned and I just had a hard time hearing it, but the full quarter impact from the subdebt on the core NIM. This quarter, no impact at all. The subdebt wasn't ---+ we didn't book it till last 3 or 4 days of the quarter, so really no impact at all on the NIM. We would expect it'll be a 2, 3 basis point impact on the NIM for full year impact. Yes, Matt. As you know, we issued about $330 million in subdebt. It was a 5-year ---+ 5% 5-year fixed and it moved to floating at I think 2.15% over LIBOR, after that for the remaining 5 years. With the $330 million, we'll pay off roughly $220 million of debt. We did pay off about $110 million or $115 million in the first quarter the line of credit that we had open and also some notes that we had downstream. When you look overall, most of the TruPS that we'll be paying off, there's a little bit of a negative arbitrage today. But as rates move up, we'll be almost at breakeven, and then we think we're well positioned for where it looks like rates are heading in the long term. So it will be a little bit of a negative impact on it, but overall, most of this will give us interest rate protection over the next couple years on some of that debt. Well, of course, we have payroll expenses in the first quarter that elevate first quarter expenses, so all the payroll taxes pretty well hit during that period of time. That will go away as we get into the second quarter. So I would say, yes, we would expect that our second quarter expense run rate will be below our first quarter. There were just several early in the year expenses that won't reoccur during the year. The majority of it ---+ yes, I'm trying to think back on that question, but most of it is accretable. The 2 acquisitions had very few impaired loans, and so the nonaccretable portion of that is very small. I don't have that dollar amount, but it's a small piece of it. I will say that our closed branches, we would expect to be breakeven as we liquidate those. The other pieces of OREO, particularly raw land pieces, boy, that's a good guess. We believe we have been marked appropriately, but we've had surprises on both sides. We've been able to liquidate some OREO at above book value, and then we've had to take some additional write-downs. And let me give you an example. So we have some raw land at ---+ that we had under contract, but the city would not cooperate with regard to some variances with their city code and, therefore, the contract went away. And we had to mark down a piece of OREO by another $0.5 million. So those things, we just work through as we get there. We believe that our OREO portfolio is marked appropriately today, particularly from a branch standpoint. We don't think that we're going to be taking any additional losses there. Okay. Thank you. I just want to take this opportunity to thank all the associates at Simmons for a lot of hard work that's gone into a very successful quarter. We went through several of the elements of nonbanking business that we went through during that quarter: a stock split, a subdebt offering and conversion of Southwest Bank and planning for the conversion of Bank SNB. And the folks responsible for all of that have their regular day jobs in addition to what they accomplished in the first quarter. It's a monumental task, and we just appreciate all their efforts, and I just want to make that known on this call today. Thanks to all of you for joining us today, and we'll look forward to doing this again about 3 months from now. Have a great day.

2018_SFNC

2017

UNT

UNT #Thank you, Ellen. Good morning, everyone. We want to thank you for joining us this morning. With me today are <UNK> <UNK>, <UNK> <UNK>, <UNK> <UNK> and <UNK> <UNK>. Each of these gentlemen will be providing you with updates concerning their segments. After their comments are concluded, we will take questions. Before we get into the individual segment reports, I would like to offer some comments about 2016 and where we stand with regard to 2017. We are pleased to have completed 2016 and have it behind us. It was a year with many challenges but also many positive accomplishments. Our behind pipe recompletion and the workover program in the Wilcox has been successful with a limited capital spend. Wilcox production increased in excess of 20% year-over-year. Our extended lateral well in the Buffalo Wallow area of the Granite Wash has performed well, above pre-drill expectations. In our contract drilling business, we lived through the full ---+ hopefully have gone through the full industry slowdown before rebounding to the present 26 operated drilling rigs. We were able to generate excess cash flow from the segment sufficient to build out our ninth BOSS rig. Our midstream business had a remarkable year by many measures. Our systems have ample available capacity to take advantage of growth opportunities as operator capital budgets expand. This segment is also well positioned to take advantage of natural gas liquid price improvement. As we enter 2017, we are establishing a capital expenditure budget that is in line with visible cash flow for the year. Due to a better pricing outlook, our budget will be increased 32% to $227 million for 2017. The budget is allocated $188 million for the oil and natural gas segment, a 57% increase; contract drilling $24 million, a 26% increase; and midstream $13 million, a 23% decrease. Our capital expenditure budget is subject to periodic review and change based upon prevailing conditions. Following the curtailment of drilling activity during 2016, Unit resumed drilling activities in the fourth quarter of 2016. Unit's oil and natural gas segment's 2017 production is anticipated to trough in the first quarter of 2017 and then begin growing sequentially in subsequent quarters. Overall, Unit's 2017 production is expected to decline 5% to 8% year-over-year for 2016. Following the two quarter suspension of drilling activities during 2016, lower average commodity prices of non-core divestitures resulted in a reduction of year-end reserves as compared to 2015. We ended the year with total proved reserves of 118 million barrels of oil equivalent, of which 16% were proved and undeveloped. While we are cautious to declare that the cycle is over, positive trends are emerging that has certainly brightened the outlook. Commodity prices appeared to at last be headed in a better direction. The industry has responded positively as seen by the US land rig count, which has grown from a low of 374 to 730 as of last Friday's Baker Hughes report. We are beginning to see service cost increases in conjunction with equipment, reactivation and activity levels. While the majority of the increase appears thus far to be on the pressure pumping side, some improvement on a spotty basis is being noted on drilling rig day rates. OPEC appears to be largely complying with agreed-upon cuts in crude oil production, and there's even discussion of a possible extension of the cuts to alleviate world inventory surpluses. New petrochemical capacity being placed into service bodes well for natural gas liquid prices. Natural gas prices continue to be primarily influenced by weather, and at this point we appear to have had another mild winter. All in all, it was a good quarter, with a positive outlook for the future. We believe we have taken steps to position the Company to take full advantage of improving market conditions while we continue to maintain the financial discipline that our shareholders have grown to expect and we very much look forward to the return to growth in all three of our segments. I'll now turn the call over to <UNK> <UNK>. We reported net income for the fourth quarter of $1.7 million or $0.03 per diluted share. Adjusted net income for the quarter, which excludes the effect of non-cash derivatives, was $12.2 million or $0.23 per diluted share. Our non-GAAP financial measures reconciliation has been included in our press release. For the oil and natural gas segment, revenue for the fourth quarter increased 11% over the third quarter because of higher commodity prices. Operating costs for the fourth quarter increased 6% over the third quarter because of higher lease operating expenses, production taxes and bad debt expense. For the contract drilling segment, revenue for the fourth quarter increased 29% over the third quarter because of an increase in the number of drilling rigs operating, somewhat offset by lower average day rates. Operating costs for the fourth quarter increased 13% over the third quarter because of more drilling rigs operating. For the midstream segment, revenue for the fourth quarter increased 9% over the third quarter because of an increase in natural gas liquids and condensate prices, somewhat offset by lower volumes. Operating costs for the fourth quarter increased 8% over the third quarter because of higher gas purchase prices, somewhat offset by lower volumes. We ended 2016 with total long-term debt of $800.9 million, a reduction of $53.7 million and $118.1 million from the end of the third quarter of 2016 and fourth quarter of 2015, respectively. Long-term debt consists of $640.1 million of senior subordinated notes net of unamortized discount and debt issue cost and $160.8 million of borrowings under our credit agreement. Our current borrowing base associated with the credit agreement is $475 million. The borrowing base consists of our oil and gas properties and the midstream business and does not include our fleet of drilling rigs. Our senior leverage ratio was 0.64 times at the end of the fourth quarter and the maximum senior leverage covenant is to be no greater than 2.75 times EBITDA. At this time, I'm going to turn the call back over to <UNK>. Thank you, <UNK>. As you know, in today's press release, Brad Guidry, who many of you know, announced his retirement as of March 31, 2017. Brad has been a great asset for us, with the nearly 30 years he has been here. We will miss him, but we wish him the very best in his retirement. While we will miss Brad, we are very fortunate to have <UNK> <UNK> as his replacement. <UNK>, as many of you know, is our Senior ---+ our current Senior Vice President of Exploration and Production for Unit Petroleum Company. <UNK> has been with us since 2007 and we believe he is ready to assume the mantle of leadership of this business segment. At this time, I would like to turn the call over to <UNK> for his review of the oil and natural gas segment. Good morning. The Petroleum Company had an excellent fourth quarter. Production for the quarter increased slightly from the third quarter due to the recompletion program in our Gulf Coast Wilcox area and despite having no new operated wells contribute to production during the quarter. Additionally, fourth quarter operating expenses were 24% lower when compared to the fourth quarter of 2015. In the Texas Gulf Coast Wilcox area, production for 2016 averaged 94 million cubic feet equivalent per day, which is a 22% increase as compared to 2015. During the fourth quarter, we continued our very successful recompletion program by completing 10 new behind pipe Wilcox recompletions for $3 million, which resulted in a net production increase of almost 10 million cubic feet of gas per day and 300 barrels of oil per day. During 2017, we plan to complete another 10 to 15 recompletions. We picked up Unit rig number 319 and spud the first of three wells in mid-January of 2017. After drilling these three wells, we plan to drop the rig for a few months to allow us to see production results and then pick the rig back up in the third quarter to drill four additional wells before year-end. Drilling capital for the seven-well drilling program in our Wilcox area is approximately $45 million. During January of 2017, planned maintenance of the third-party operated processing plant required Gilly Field to be shut in for five days, resulting in a production loss of approximately 0.5 Bcfe. The processing plant was back to full operational capability by the end of January. Even with this production loss, annual production from this area is expected to remain flat to slightly increasing during 2017 as compared to 2016. In the SOHOT area, production per day for the fourth quarter increased 4% ---+ or decreased 4% from the third quarter of 2016, which was in line with expectations. The decline in production is due to natural decline rates and because no new wells were completed in the third quarter. Production from this area is expected to continue to decline through the first quarter before increasing in subsequent quarters as a result of our 2017 drilling program. As planned, the Company drilled two horizontal Marchand oil wells within the SOHOT area in the fourth quarter of 2016. <UNK>th wells were successfully fracture stimulated and are being tested now. After drilling these two wells, the drilling rig was released in January for three to four months as performance of the two wells is monitored. We plan to begin a seven-well drilling program utilizing a Unit rig in the second quarter and spend approximately $30 million drilling in SOHOT during 2017. In our Granite Wash plays in Texas Panhandle, production per day for the fourth quarter decreased 8% from the third quarter, which was lower than expectations. The decline in production is due to weather events that caused slow oil hauling during the quarter and due to natural decline rates with no new wells being completed. The Dixon 5554 XL [number 1H], our first Buffalo Wallow extended lateral with a 7,500-foot horizontal, completed in April of 2016 from the C1 member (inaudible) of the Granite Wash, continues to perform well, with cumulative production to-date approximately 50% higher than forecasted by the type curve. Unit rig 152 has picked up in December and began a non-well extended lateral Granite Wash drilling program in the Buffalo Wallow field that is planned to continue throughout 2017. Drilling capital for this non-well program is approximately $50 million. For 2017, we will focus on drilling the C1 and A2 members of the Granite Wash, which appear to have similar characteristics. At this time, I will now turn the call over to <UNK> for the Drilling Company update. Thank you. The fourth quarter was a very nice continuation of the improvement that the contract drilling segment began experiencing during the third quarter. Even though our rig count only increased by four rigs during the quarter, we were able to obtain several contracts for additional rigs that have begun working during January and February of 2017. Average day rate for the fourth quarter was $16,866, a decrease of $612 per day from the third quarter. The average total daily revenue with no elimination of intercompany profit and early contract termination fees was $18,413, which was an increase of $908 from the third quarter. The increase in total revenue was attributable to an increase in other income and mobilization revenue. Our total daily operating cost decreased by $1,028 for the fourth quarter as compared to the third. This follows a substantial reduction in operating costs that was achieved during the third quarter. This large reduction in expense is attributable to lower indirect cost, yard expense and G&A expenses. The average per day operating margin for the fourth quarter with no elimination of intercompany profits and bad debt expense was $6,478, which is a $1,932 per day increase from the third quarter. This is a result of increased daily revenue and a reduction in cost. The fourth quarter results included $885 per day in non-reoccurring cost savings. Our non-GAAP reconciliation can be found in today's press release. We began the quarter with 17 operating rigs and increased to 21 by quarter's end, and we presently have 26 active rigs. Our activity level has remained relative consistent with industry activity levels. In addition to the 26 rigs currently operating, we have recently received contracts for four additional rigs that are scheduled to return to service during the next few months. Our ninth BOSS rig was placed into service in the Permian at the end of the fourth quarter. We already owned the major components for this rig and completed fabrication and commissioning prior to year-end. This was ahead of schedule and under budget. Currently, all nine of our BOSS rigs are operating, with seven of them under term contracts. Our recent cost savings programs and our greater-than-projected cash flows allowed the increased CapEx budget needed to build additional BOSS rig while remaining within our cash flow. We completed the sale of an over 1,500-horsepower SCR rig and several other excess items during the fourth quarter, which allowed us to do upgrades of various rigs going into service. During the last six months, we have either put into service or contracted for the first quarter of 2017, 13 1,500 horsepower SCR rigs and one 1,000 horsepower SCR rig. Eight of these 14 drilling rigs did not require any upgrades or additional equipment. The other six rigs were upgraded to varying degrees with walking systems, 7,500 psi mud systems and/or hydraulic catwalks. We remain confident that we will manage through the current market cycle because of our history of being financially prudent, our long-term relationships with key operators, and the versatility of our fleet and our people. During this recent addition of active rigs, we have been able to prove these rigs with all former employees. We're optimistic that the current demand for rigs will be sustainable but it will certainly be dependent upon commodity prices. I'll now turn the call over to <UNK> for the Superior Pipeline update. Thank you, <UNK>. The midstream segment completed a successful year, increasing operating profit by 17% and increasing total per day throughput volume by 19% compared to 2015. These increases were achieved despite the low price environment we experienced in 2016. While these results were primarily due to increased fee-based volumes, 29% of our gross margin is made up of contracts that are impacted by commodity prices. While liquid prices remained depressed in 2016, we expect to see an increase in ethane and propane prices, which will result in higher gross margin for our price-exposed processing systems in the future. This year's increase in total throughput volume was mainly due to connecting additional wells to our fee-based gathering systems located in the Marcellus Basin and our Wilcox Segno system in Southeast Texas. At the end of 2016, we operated 25 active gathering systems with approximately 1,465 miles of pipeline and 13 natural gas processing plant skids, with total processing capacity of approximately 340 million cubic feet per day. I will now focus on several key areas on our midstream business. At our Hemphill facility in the Granite Wash area, our total throughput volume averaged approximately 59.5 million cubic feet per day for the fourth quarter of 2016. We produced approximately 145,700 gallons per day of natural gas liquids. At this processing facility, our total processing capacity remains at approximately 135 million cubic per feet per day. There is active drilling in the Buffalo Wallow field and we expect to connect several additional Granite Wash wells from this area in 2017. At our Segno gathering system located in Southeast Texas during the fourth quarter, our average throughput volume increased to approximately 91.3 million cubic feet per day. We connected three new wells to this facility during 2016. The overall gathering and dehydration capacity of this system is currently 120 million cubic feet per day after the completion of several facility improvement projects. In the Appalachian area, at our Pittsburgh Mills gathering facility, we continued to connect additional wells and increased total throughput volume. During 2016, we connected 18 new wells from four well pads to this gathering system. With these additional wells, the total throughput volume of this system for the fourth quarter averaged approximately 152.7 million cubic feet per day. We expect to connect the next well pads to this system in the first half of 2017. Initial construction activities are underway, and we anticipate pipeline construction to begin in the first quarter of 2017 with an estimated completion date in the second quarter of 2017. In summary, in 2016, our financial and operational results were very attractive given the pricing conditions we experienced this year, mainly due to our ability to connect fee-based volumes in the Appalachian area. Given our mixture of contracts with 29% of our margin exposed to commodity pricing, we expect to see increased margins at our processing plants and methane and propane prices to improve in 2017. With the continued success of the fee-based Appalachian area systems, along with our improving processing economics at our processing facilities and our continued focus on controlling costs, we believe the midstream segment is well positioned for continued success in 2017. At this time, I'll now turn the call back over to <UNK>. Thank you, <UNK>. Before moving to the Q&A, we would like to, once again, just highlight a few points. We have discussed many accomplishments by each of our business segments. Physical discipline is of critical importance to us, and I believe we have delivered by reducing capital expenditures to a level within cash flow and managing our costs very carefully. Our oil and natural gas segment has had the opportunity to observe well performance and now we have restarted our drilling activity. The suggested rates of return that we're achieving will compete with the most popular basins across the country. We continue to have an ample prospect inventory to deliver strong results for years to come. The rebound in drilling activity is exciting to see, and the visibility of four additional rigs under contract is suggesting that it will continue for the near-term. Midstream segment has performed remarkably well, managed to hold its own during the cycle despite reduced operator capital expenditures. Anticipated improvement in natural gas liquid pricing will provide a platform for continued growth in cash flows. Overall, we believe we have taken and continue to take the steps necessary to navigate this business cycle. We have come out of this part of the cycle leaner and well positioned to take full advantage of improvements to create additional value for our shareholders. Ellen, I would like now to turn the call over for questions. On the E&P side, we've seen the prior ---+ the primary service cost increase has been on the fracture company pressure pumping, and 2017 currently looks like it's ---+ the pressure pumping's going to end up being maybe 50% to 60% higher than it was, say, in the mid-part of 2016. That kind of cost increase on the pumping side will result in about a 10% increase to our drilling and completion costs as a whole. If we picked up and set another rig, that rig would go to the Granite Wash in our Buffalo Wallow field. Our rates of return there with the current NGL prices are very good and additionally, Superior gathers all of our gas and they process our gas. So, we get an extra $0.80 per Mcf margin on gas for us ---+ or they get a ---+ Superior makes $0.80 per Mcf margin. So, as a corporation, the economics look really good for a second Buffalo Wallow rig. The activity ---+ bidding activity in the last couple of weeks has probably not been as great as what it was during the month of January, which is probably very understandable. We still have a pretty continuous request for bids but it's just not as great at what it was. I do want to point out that the four additional rigs are definitely going back to work. Those are contracted rigs. Not to be picky, but likely to go back to work; those are contracted rigs. So, we feel comfortable we will go forward. Yes, this is <UNK>. Yes, we would definitely prefer that, by all means. If we couldn't find somebody later on in the year to do a term contract on it, we'd consider going in and completing it. But we are ---+ right now, we're pretty confident that we'll be able to get that rig contracted and hopefully out running, maybe a year or so. There are really two things working in favor of doing it this year. And of course, one of them is higher cash flow. Commodity prices, we honestly expect it to be higher than what we used in our budget. We're typically pretty conservative in what we budget going into the year. And the other, we would have some planned divestitures in some areas that right now is not in that budget number, and if those divestitures should happen, I think that would enable us to put another one or two rigs to work mid-year or so. We're pretty confident that the trough is going to happen in the first quarter. A couple of things that really contribute to that is that we have the plant shutdown for five days in our Wilcox area that will reduce our first quarter production by about 0.5 Bcfe. In addition, another event that happened that I didn't mention in my script was in our Texas Panhandle area in the Granite Wash. There was a severe ice storm in January that resulted in power outages out there for three to four weeks in many cases. And that cost us another 0.3 Bcfe. So, because of those two events, our production in January in the first quarter is going to look low. And then, because of our drilling program, where we'll have some wells coming online at the end of the first quarter, and in the second quarter, we feel confident that we'll see a pretty good jump in production from first quarter to second quarter. If we were to pick up a second rig in the Buffalo Wallow, we would continue to see jumps similar to what we'll see in the second quarter, but without that, we're still going to have increases quarter-to-quarter through 2017. Did that answer your question, <UNK>. That's a good question. I think on the pressure pumping side, I think most of the cost increases have already been seen, although it will depend on the rig count and what happens with that. But because of the increased margins that the pressure pumping guys are seeing, they're starting to bring equipment back into the areas where we operate. For instance, in the mid-continent out in Oklahoma, we've seen Schlumberger bring two frac crews back into that area, and BJ, who is the fracture company for GE-Baker, they're bringing four frac crews back to that area. And so, while we've seen this jump, I think there's going to be a limit to it because more equipments going to come back into play. If we see additional pressure on the total well cost side, it'll likely come from other services other than pumping that you might see start to increase. The budget that we put together incorporates about a 10% increase in our drilling completion cost. So, we've tried to already plan that in. <UNK>, I think, where the debt is today, we're pretty comfortable with that. I don't know we necessarily would want to see it increasing by any means. But as far as paying down debt this year, with the opportunities that we have, with the rate of returns that we're seeing in the E&P area and drilling wells, we don't see any reason to reduce debt further than where we are now. That's within, whatever, $10 million or $15 million one way or the other. But no more ---+ it's not our plan anyway right now to do any significant reductions or increases into our debt structure. Thank you, Ellen. We very much appreciate everyone being on the line. Next week, I guess we're going to be in Dallas at the EnerCom ---+ the new EnerCom Conference that's now in Dallas instead of San Francisco. We hope to see many of you there. If not there, several more conferences are coming up near term and we plan on participating in as many as we can. Thank you again for listening in.

2017_UNT

2018

CRUS

CRUS #Thank you, and good afternoon. Joining me on today's call is <UNK> <UNK>, Cirrus Logic's President and Chief Executive Officer; and <UNK> <UNK>, our Director of Investor Relations. Today, we announced our financial results for the third quarter fiscal year 2018 at approximately 4:00 p. m. Eastern. The Shareholder Letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session are all available at the company's Investor Relations website at investor. This call will feature questions from the analysts covering our company as well as questions submitted to us via e-mail at investor. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those projections. By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release issued today, which is available on the Cirrus Logic website, and the latest Form 10-K and 10-Q as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations. Now I'll turn the call over to <UNK>. Thank you, <UNK>. Before we begin taking questions, I'd like to make a few comments. For a detailed account of our financial results, please read the Shareholder Letter posted on our Investor Relations website. Cirrus Logic reported Q3 revenue of $482.7 million, GAAP operating profit of 21% and non-GAAP operating profit of 26%. GAAP and non-GAAP earnings per share were $0.52 and $1.59, respectively. As a result of our meaningful concentration and the tendency of the investment community to draw conclusions about our largest customer from our results, we chose to wait to announce our results until after our largest customer's earnings. While our design position with key customers remain strong, revenue for the quarter reflects unanticipated weakness in the smartphone demand that materialized in late December. Although sales in Q3 and our Q4 outlook are disappointing, the company remains focused on delivering a robust portfolio of compelling components in a timely manner and maintaining our strong relationship with key customers, which we expect will fuel future growth opportunities. Based on our current visibility, in FY '19, we anticipate revenue will be relatively flat. However, with a substantial portfolio of components and an exciting product road map, the company is actively engaged in design activity that we believe will contribute to the resumption of growth in calendar year 2019 time frame. We believe Cirrus Logic's future is bright as our core competency of designing complex analog and digital signal processing components at ultra low power levels, combined with our extensive software capabilities, is increasingly important in the sophisticated audio and voice markets we serve. With a broad portfolio of smart codecs, boosted amplifiers, hi-fi decks, MEMS microphones and a robust road map in various stages of development, we believe we have the potential to increase penetration of existing customers and expand into new Android customers in the coming years. Before we begin the Q&A, I would also like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship. Operator, we're now ready to take questions. No, other than what we've guided. I mean, obviously, this is a little bit of how the semiconductor industry operates in the sense that in many cases, if our ---+ if one of our customers gets a cold, we catch the flu. And I don't know what that means happens to the ones ---+ the folks supply ---+ that are our suppliers, but it's even worse in their case because at the end of the case, when you ---+ at the end of the day, when you ramp really heavily and then at some point have to reconcile exact supply with demand, it impacts us ---+ can impact us in a pretty major way, in an exaggerated way relative to what even hits our customers. So at the end of the day, I don't think it's a ---+ the sky is certainly not falling, but it was a period where we got to get supply and demand all back in check across the supply chain. And so no, we don't know have any particular guidance as it relates to going forward. We think the markets we're serving are healthy and robust. And perhaps rather than a super cycle, we got a pretty good cycle. So I again don't see anything as the sky falling and certainly not any trends to extrapolate out into infinity, but did hit us for the current period. And the great news is we've got a bunch of good things in the works that we expect will drive future growth, a lot of which we would expect to contribute to diversification as well. So I think we're on the right track for the long term. And so that's kind of where things stand. Well, it is a case where we'd obviously in a year where we're kind of flattish would be taking a lot closer look at things and managing our expenses prudently. But at the same time, we got to balance that against we've got some really compelling things that we're gunning for in the calendar '19 time frame. And they're of the sort like we've had in the past where we can get behind in a pretty big hurry, so ---+ from an R&D resource perspective, that is. So we need to kind of balance those couple of things. It's difficult to guide and have it be useful, but I know you all need something for your models at this point. I'd pick something in the 8% to 10% OpEx growth range for the year. And then we'll keep an eye on that as things unfold and make adjustments accordingly. Sure. I mean I'd say the things that are most probable and, actually in this case, biggest are the things that are closest to home in terms of the product line. We've got great things going on in the smart codec space for the Android community, in particular. I mean, nothing wrong with the rest of the community either, but the things we're talking about are probably particularly exciting for the Android ---+ in the Android space. We've made great progress on the amplifiers. We're continuing to rack up base hits, and I expect that this will be another good year on that front. The new 55-nanometer amp with integrated DSP has received that kind of reception in the customer space that is really, really strong, strong demand for that device. So the team has clearly done a very good job. So we expect calendar ---+ fiscal, this coming fiscal year to be more base hits and setting the stage. But those are a couple of big, big moving pieces for calendar '19. We see some good opportunities for headsets as well. We've broadened out that road map. Some detail on the letter about next-generation device that we've gotten back, is working very well. We're getting lots of interest there. And then of course voice biometrics, which, again, has the potential to be transformative for the company. It is probably a more elaborate design-in process. And so it's one we want to be cautious on. But there's nothing in that product line that is ---+ has decreased our enthusiasm for what that might do for the company over the long term. We're extremely, extremely excited about that customer reception. Folks that have seen the pitch, seen the demos has been extremely solid. And so things look really good on all of those fronts. Let's see. We're still ---+ well, now we're not football season. I'd say we're in the pregame show rather than the prime time all the way, but things are going very well, right. As we've indicated on the last couple of calls, the team has continued to do a good job of knocking off some of the really difficult technical challenges. We've got work to do remaining there, but at the same time, we're now doing it with the supply chain that is heavily centric in Taiwan, Tier 1 vendors from front to back. And we're really down to a couple of very small ---+ well, very difficult but very small list of technical challenges between us and being able to confidently pound the table and be comfortable saying we can ship a quantity of microphones that's in the quantities that would make this an interesting business for us. Customer pull is very strong. There's a lot of interest in our premise initially of providing microphones that don't cause our customers a lot of drama, which is currently the current state of affairs and obviously not something that is part of Cirrus Logic's business model. We pride ourselves on being the most reliable supplier a customer can have. So it's still ---+ on the growth vectors that we've got in play today, I would say that's still one of the ones that's further out there, but nothing has diminished our view that that's a really good opportunity for us, one that's really synergistic with everything else we're doing and one that offers a lot of opportunity for us to continue to differentiate that product line once we've rendered it to the position where customers would be comfortable shipping hundreds of millions of units from a single-sourced device, which, again, is not the case today. So good progress, still work to be done. Well, I mean, it's, I would say, from a pricing perspective, nothing unusual going on. It's business as usual. I always enjoy the news articles about how one of our customers is suddenly going to start cracking the whip on their suppliers. I must have missed the year when that wasn't the case. So I would say nothing unusual on that front as far as content is concerned, nothing that we ---+ would be appropriate for us to get into at this point other than whatever we expect to have happen for the fiscal years is contemplated in the color we provided for the year. (technical difficulty) So not a lot of drama on that front, I would say. Well, in particular, you hit the nail on the head. The USB-C stuff has taken longer than expected to take off both because there were technical challenges I think for the core chipset vendors to have that be a really compelling solution for streaming audio, and, in particular, voice calls with respect to round trip latency and other kind of technical things needed addressed. And then also just kind of some uncertainty about do we remove the headphone jack, do we not, all that. But that seems to be unfolding now. There's perfectly reasonable solutions out there. We've got good opportunities with customers that matter to ship a variety of USB-C enabled headsets. So I would say that our opportunities there are bigger going forward and they have been for sure and also our product line is getting more well-rounded out. So we've got better solutions for everybody that might be targeting different price points and features and functions and whatnot. It seems fairly compelling to me that the market will move in that direction over time. So we just need to make sure we're ---+ continue to make sure that we're positioned as well as possible for them. Yes, we're ---+ well, we don't generally break it down much below the line anyway. I think it's a flattish kind of a year. I mean, we're continuing to rack up base hits on some of our new initiatives. There's always ASP erosion and pricing and other things. I would say it's just from the company's perspective, a relatively undramatic year is kind of the way we've got it modeled. We're making great progress on all of our initiatives. Some year, things all line up at once and we knock the cover off the ball. And other years, it's kind of some cancellation and things that aren't ---+ that don't add up as solidly. But we're moving in the right direction. We see great opportunity going forward to resume our growth track. And so I'd say this is kind of the year of us minding ---+ tending to our business and making sure we actually execute on all these opportunities in front of us. Well, more time. These design wins, when we come out with a new product, it takes a year for a customer to wrap a product around it. And sometimes, you've got to wait for product cycles to line up and everything else. So this is something that I talked about a little bit on the last call. We've got ---+ from a very long track record over the company's history of when we get into something new, it often takes as much as 5 years for it to turn into a real valid and growing business for the company. And we're coming up on the calendar '19, turns out to be about the 5-year anniversary of our putting Cirrus and Wolfson together and reconciling the road maps and really broadening things out more rapidly. And it sort of feels like it's just how long it's kind of taken for things to percolate through the whole process. I noticed in the Shareholder Letter, <UNK>, there was a reference to delivering the voice biometrics kit evaluation get to a lead customer in December. So I just wondered if you can maybe shed a little bit more light on there, why there was sort of one customer, lead customer. Is there any exclusivity there. Or would that just happen to be the first one that raised their hand. And then just in general, your views on the uptake of that product, smartphone versus IoT device, where does the interest level seem to be. Sure. So I mean, again, we're heavily targeted at handset initially. We're very excited about smart home. And we've got initiatives in place to support voice biometrics and other voice technologies that are closely related such as far field beamforming and whatnot in smart home. But we're currently more ---+ we're targeting handsets because it's just so vastly bigger, and also the hands free use case for handsets really screams for that technology. We generally tend, when we launch new devices, to focus on lead customers. I'll put the usual caveat in there that if we're talking about it on an earnings call long before the product is available on retail shelves, then it is clearly not for our largest customer because we don't talk about stuff for them ahead of time. That is not to say that we wouldn't or aren't working on something similar to whatever we talk about on the earnings call, but just be mindful of that. That said, we generally tend to focus on the customers in order of relative importance. And these are ---+ voice biometrics, of all the things we're doing, is likely to be a heavy, heavy resource-intensive demand ---+ design-in process. There's just a lot, lot of effort that goes into bringing this stuff out to customers' standards, doing all sorts of false accept and reject testing, multiple different language support. It's a pretty sizable investment and opportunity for the company. The team's done an amazing job of getting it to the point that it's at today. And the reviews from the folks that have evaluated it have done really pretty solid. So we continue to be excited about where that product line is going. It's something that is a large undertaking and we expect will continue on for a good bit of time. But you would definitely see us focus on a small number of customers that can really move the needle first on that product line. Great. And then for my follow-up, I was wondering kind of where we stand on the mid-range as an opportunity. I know you guys have talked about that the past couple of years. And I think you've had some wins there. To what degree does that grow in fiscal '19 and better than that forecast. And what's the sort of outlook going forward. Yes. Again, it's kind of a series of base hits in fiscal '19. We've made good progress. And definitely that new 55-nanometer amplifier is really well situated for the mid-tier market. We should see good things happening in that product line over the course of the year kind of as proof points that we're heading in the right direction. That's a device that can just as easily be applicable across mid-tier or flagship maybe with stereo usage being more common in a flagship than a mid-tier. But either way, those are both great growth factors for us. So I think the strategy of migrating a subset of our features that we sell in flagships down into the mid-tier is unfolding very nicely. We're seeing that ---+ we're seeing good opportunities across the applicable product lines, maybe with amplifiers being the furthest along simply because no matter what features you're targeting, what kind of performance level, price point, et cetera, that you're targeting for a smartphone, pretty much everybody would like it to be a much better speakerphone. And a lot of that is about being loud enough under average conditions to be able to use it in a noisy environment, say, on the passenger seat of your car. So seeing really good demand trends there, and that product line is probably the furthest along in terms of our opportunities for the mid-tier. But thus far, I think we're just seeing the strategy of migrating things down to mid-tier being validated. So again, I'm not commenting ---+ or my comment is specifically we don't see anything out of the ordinary currently going on as it relates to us. So if there's other things going on elsewhere in the industry, maybe you know more about that than I do. So we don't see a whole lot moving ---+ a whole lot of new drama going on there. It's ---+ I've been ---+ so there's a couple of premises to your question that I'm going to stay away from. But our ---+ in the mixed-signal business, there's always some fraction. You asked, is there any chance. Well, of course there is. In our business, there's always some chance of some fraction of what you're doing is getting integrated into whatever the big square chip in the center of the board is. And the name of the game in mixed signal is always to be trying to put new things on the board that maintain our relevance and viability. And if we get relegated to a position where we're selling the same part year after year after year, well, then customers should look at bringing it inside because there's no more nimble moving around the gives us the advantage that we have today. But we see a great opportunity to continue to innovate and add neat new stuff to audio and voice and voice biometrics and far field signal [prop]. So we see plenty of opportunities to continue to grow our business, and at the same time, we see better opportunities to diversify in a good way than we've ever had in the past. So I think overall, the outlook is pretty robust. Well, it's also ---+ on top of that, you've got to look at ---+ there's a number of things that kind of roll over at the new year. You get extra payroll expenses and couple other items along the lines, along those lines. Well, the new tax policies or the tax reform doesn't have a lot of effect on our capital distribution at this point in time. It wouldn't affect us in M&A. It's something that really the tax effect is a wash between the advantages that you get on the changes in the U.<UNK> tax rate and the additional taxes that have been imposed. So it doesn't have a whole lot of effect on any of those things. One benefit is that we have more flexibility with our access to cash, so we can get to our overseas cash without a problem. And that said, again, we'll be looking at share repurchases certainly. We announced a $200 million authorization from our board, and that's in addition to the $62 million that we already have. So we'll continue to look at that opportunistically and we certainly look at small M&A opportunities. And as we've talked about historically that if the right larger transformative type of deal came along, we would certainly consider pursuing that. I just want to make sure I'm talking about what you're talking about. By ASP pressure, you're talking about they used a lower-cost device this year than the previous year, right, not just standard ASP per (technical difficulty) Yes. I mean that was a decision that one of our customers made to use a lower cost ---+ I guess, you can call it a less smart codec this year. We predicted that was going to work out poorly. It has worked out poorly. And it's kind of hard to get to the details of it, and it's not our business to go spreading around publicly. But I mean, if you see some of the challenges that, that customer's had in the news as it relates to voice and voice services, it's directly related. So certainly, that is related to some of our optimism for calendar '19 kind of time frame. <UNK>, in summary, we firmly believe in Cirrus Logic's long-term success. As a leading supplier of the complete audio signal chain with a portfolio of products that span the technical and price requirements of flagship and mid-tier devices, the company is in a unique position to address the increased demand for innovative audio and voice products in the smartphone, digital headset and smart home markets. If you have any questions that were not addressed today, you can submit them to us via the Ask a CEO section of our investor website. I'd like to thank everyone for participating today. Goodbye.

2018_CRUS

2017

D

D #Good morning Strong operational and safety performance continued at Dominion All of our business units either met or exceeded their safety goals through the first nine months of the year I'm pleased that our employees set an all-time low OSHA Recordable Rate of 0.66 last year and are on track to improve on that record this year Our nuclear fleet continues to operate well The net capacity factor of our six units through the end of the third quarter was over 96% Weather-normalized electric sales for the first three quarters of the year were up 1.7% over the same period last year, led by growth in sales to data centers and residential customers Year-to-date total new customer connects are in line with our expectations, and strong growth in commercial connections have offset slightly lower than expected growth in residential new connects Through the third quarter, we have connected 11 new data centers compared to 7 for the first nine months of last year Also during the quarter, our Gas Infrastructure group executed an amendment to an existing Marcellus farm-out agreement, locking in the remaining value under the agreement and securing payments totaling $130 million in 2017 and 2018. You will recall that in 2015 when we began discussing our farm-out program, we anticipated generating between $450 million and $500 million in earnings from farm-out transactions from 2015 through 2020. We are halfway through that timeline, and despite less than ideal commodity market conditions, we have already achieved nearly three-quarters of our objective Last week, the Connecticut General Assembly approved legislation that will allow our Millstone nuclear plant the opportunity to compete with other non-emitting generating resources in a state-sponsored solicitation for zero-carbon electricity On behalf of the 1,500 women and men working at Millstone Power Station, Dominion Energy thanks the General Assembly for giving Millstone this opportunity and is grateful to the Malloy administration for his work in negotiating the current form of the legislation It provides a path forward to retain 1,500 well-paying jobs and Millstone's substantial environmental, energy, and economic benefits to Connecticut Now, for an update on our growth plans; construction of the 1,588-megawatt Greensville County Combined Cycle Power Station continues on-time and on-budget As of September 30, the $1.3 billion project was 60% complete The air-cooled condenser is over 80% complete All pipe rack modules have been set and pipe welding continues at a steady rate Greensville is on schedule to achieve first fire in the second quarter of next year, and is expected to achieve commercial operations in late 2018. We have a number of solar projects under development, and continue to see demand for renewables from our customers Year-to-date, six solar facilities totaling approximately 169 megawatts have achieved commercial operation For all remaining 2017 projects, panel deliveries have been secured and the projects are on schedule for completion this quarter In total, we have announced 457 megawatts that will go into service this year, and expect to add another 200 megawatts by the end of next year, increasing our gross operating portfolio from 1,660 megawatts to over 1,800 megawatts, of which 700 will be in Virginia and North Carolina Earlier this month, we announced we will add solar generation to serve a new data center Facebook plans to build in Central Virginia Pending State Corporation Commission approval, this need will be met with a new rate option, Schedule RF, which will allow large energy users to meet their needs through the addition of renewable energy resources We are currently evaluating the potential for pump storage project in the coalfield region of Virginia A preliminary permanent application has been filed with FERC, identifying a potential project site in Tazewell County, Virginia We've also contracted with Virginia Tech to study the feasibility of using an abandoned coal mine in Wise County to construct a pump storage facility The General Assembly has enacted legislation stating that construction of one or more new pump storage electric generating facilities in Southwest Virginia is in the public interest with costs recoverable through a rate rider In July, we announced that we had signed an agreement with Ørsted, formerly DONG Energy of Denmark, a global leader in offshore wind development, to build two turbines off the coast of Virginia Beach The two companies are now refining agreements for engineering, procurement, and construction Dominion Energy will remain the sole owner of the project, which is targeted for completion in 2020. We plan to seek wider recovery for the project during the first half of next year We have a number of electric transmission projects at various stages of regulatory approval and construction Through the end of the third quarter, $419 million of assets have been placed into service We plan to invest $800 million in our electric transmission business this year and every year thereafter for at least the next decade Progress on our growth plan for Gas Infrastructure continues as well Our Cove Point Liquefaction Project is now 97% complete and remains on-time and on-budget Construction is essentially complete All processes have been turned over for site commissioning and we have entered the final phase of start-up We have completed the initial operating run on auxiliary reboilers, steam turbine generators, Frame 7EA combustion turbine, and numerous motors, pumps, and compressors that are part of the liquefaction process FERC has approved the introduction of all hydrocarbons necessary to generate LNG The operation's formal training is complete We are fully staffed with trained and qualified operators We will begin generating LNG next month, then conclude commissioning in December, and expect to be in service by the end of the year We're continuing the work toward the commencement of construction on the Atlantic Coast Pipeline and the related Supply Header Project On October 13, FERC issued its Certificate of Public Convenience and Necessity, and we filed our acceptance of the certificate the following week The project has achieved several additional permitting milestones over the last few weeks, including the Biological Opinion from the U.S Fish and Wildlife Service, approval of the Virginia Outdoor Foundation easements, and approval from the Virginia Department of Game and Inland Fisheries ACP and Supply Header have essentially completed the design and engineering, executed the construction contracts, and completed 90% of materials procurement We expect to commence construction late this year and to complete both the Atlantic Coast Pipeline and the Supply Header in the second half of 2019. We've also made progress on nine Gas Infrastructure growth projects representing over $1 billion of investment Three of these projects have been completed this year, and we expect two more to be completed by year-end In addition to these incremental projects, we plan to invest $325 million to $350 million per year in our three gas utilities as part of our ongoing pipeline replacement programs These costs are recoverable through rate rider programs in all three jurisdictions And in September, we announced a long-term investment program to modernize our Dominion Energy Transmission's pipeline and storage infrastructure These investments will deliver operating reliability, security, safety, and environmental benefits, and are expected to total about $250 million per year To support this investment program, we plan to file a rate case in the first half of next year, the first for this pipeline in over 20 years, in which we will request updated rates and establish a tracker for recovery of the modernization investments Finally, earlier this month, Dominion Energy's board of directors declared a dividend of $0.77 per share for the fourth quarter of this year, an increase of 10% above the dividend paid in the fourth quarter of last year The increase reflects the board's confidence in Dominion Energy's execution of its growth plan, and the enhanced cash flows made possible by our master limited partnership Our plan is to share these benefits with our shareholders by growing our dividend at a 10% rate through at least 2020. So, to summarize, our business has delivered strong operating and safety performance in the third quarter Construction of the Greensville County project is on-time and on-budget Construction of the Cove Point Liquefaction Project is essentially complete, and commissioning is well underway to be in service late this year, on-time and on-budget We received the FERC Certificate for Atlantic Coast Pipeline and Supply Header Project and will commence construction soon And we expect earnings of at least 10% in 2018, driven by completion of the Cove Point Liquefaction Project, and 6% to 8% growth from 2017 to 2020. We further expect earnings per share growth of at least 5% per year thereafter, supported by a diverse set of growth programs Because of our unique MLP structure, our superior cash flows will also allow a dividend growth rate at Dominion Energy of 10% per year through at least 2020. With that, we will be happy to take your questions Question-and-Answer Session Morning, <UNK> <UNK>, first, we're not going to comment any further on what's going on in Connecticut The Governor has the budget and the Millstone legislation, and until we've gotten through that process, we're just going to remain – we'll see what happens We'll have further comments after that has taken its course Well, there's two parts to that question First part, how surprised are we? We weren't surprised We've been working on it for two years and been deeply involved in it for that period of time And as far as how the Governor is going to react to it, we're going to make no further comments on what goes on in Connecticut until we get on the other side of that process We're just going to have to hold off on giving any further information on what the future of Millstone Power Station is and how it will play through under this auction until we get through this legislative process Good morning There's no M&A involved in that, and there aren't any big projects I think if you look at the presentations we've made through these fall conferences, we lay out a more programmatic method of achieving that growth post 2020 in all aspects – all parts of the business There's a lot of slides available on our website I think they can take you through all that <UNK>, do you want to add anything? Thank you Are you talking about the DOE letter to FERC initiating the rule-making? It's going to be very interesting to see but – what happens, I mean we still only have three FERC commissioners and two more coming So, I don't think we really have an idea And I've read some comments by at least one of them who doesn't think we should – as he had put it, should be putting their finger on the scales of fuel sources But they've reacted quickly I don't want to predict how that's going to come out, but it certainly – Connecticut certainly hasn't been willing to depend on it Thank you Good morning I wouldn't think so I think we do expect to land on that $450 million to $500 million It's just, I think, more will be more timing of when the farm-outs come in But I wouldn't – I'd love to say yes, but I don't think that would be reasonable at this time, unless you see dramatic increase in commodity prices Thank you Good morning I'll give you a general answer and <UNK> can fill in any specific questions We really, there's – we need water permits in West Virginia and North Carolina and Virginia We expect all those by the middle part of December, as we're going through the process It's a very typical process, lots of questions come from the regulators We provide answers that makes them ask more questions, and we provide more answers But we're coming to the end of that process, and we expect to have all those permits by the middle part of December and be underway <UNK>, anything to add to that? Good question But the way that – our shippers get to take up whatever excess capacity there is Thank you I'm talking about our existing shippers obviously Hey, <UNK> Thank you

2017_D

2017

MLM

MLM #I think you will see good FAST Act activity as soon as we start getting toward the May timeframe. I don't think you're going to see a lot of dirt being moved in January, February, March, but I think by the time we get April, and surely by the time we get to May, it will be happening. Which is why, in large part, I think you hear people across the industry speaking to the notion of more of a back-half-loaded year and I think that's one of your big reasons, <UNK>. We are seeing a lot of good light non-res; that's probably the bigger headlines. But what I will tell you is we are still seeing probably more of the heavy side than you would otherwise think and it's funny to see how it rolls. For example, we are seeing a lot of big energy-type work going on in the Southeast right now. If we're looking at what's going on in Florida and parts of Georgia, it's actually pretty attractive. There's the Big Bend power plant in Tampa; there's the FPL natural gas pipeline that they refer to as the Florida Southeast Connection. Savannah River has some things going on as well. And you've also got Georgia Power Plant at the McManus plant that is going through a demolition and some rebuild after that. Again, we see fantastic work on the light side and the way that I would encourage you to think about that is really do it kind of corridor-focused spot in your mind. Think about the I-25 corridor in the Rockies; think about I-35 in Texas. When you get to the East really start thinking about 85, 95, Interstate 20, Georgia 400; all of those we are seeing very good activity. And we are seeing good activity, too, in the Midwestern United States right now. Part of what we've seen there ---+ and this has really been a surprise to me and it's part of what gives us even a more robust outlook, I believe, on what could happen on infrastructure. Historically, in places like Indiana and Ohio the vast majority of our work there has always been public work and what we saw this past year was a reversal of that. We really saw considerably more private work in those markets than public and I think we're going to see a big pickup in public there as well. But my point to you on that is I don't think that private is going away; I think it's going to be healthy. I think the light side will be healthier than the heavy side, but I equally think the heavy side is going to be better than most people believe. No, look, it won't float away. It's going to come in different waves throughout the year. The other piece that is hard to really gauge, <UNK>, is how some of the repair behind Matthew is going to work, because there were some parts of South Carolina and North Carolina that stayed so inundated for so long. It still strikes me as amazing to see what we're doing in Colorado behind the flooding there four years ago, because Colorado still has flood repair work this year to the tune of $290 million of related projects in that state that many years out. So what I would say to you is: one, I don't think any work that didn't happen due to Matthew goes away. I think there's work caused by Matthew that's going to come and I think there's likely to be work that comes from Matthew that's going to come, candidly, probably for the next five, six, seven, eight, nine, 10 years in the eastern part of North Carolina and parts of South Carolina. I think the market in the Western US that clearly has the most room for that is in Colorado, as we've discussed for a while, and we have been focused on that. As you know, barriers to entry there are very high. And for us to come back and make sure that we can keep those long-term operations in place is a tough thing for anybody to do, so we want to make sure we are recognizing good pricing there. I do think that spot shortages up and down I-25 may well lead to the opportunity to look at more mid years in that marketplace than we've seen over the last several years. If you reflect on what has happened to pricing in Dallas over the last several years, keep in mind that was about 65% of our corporate average here 2.5 years ago. It's still not to our corporate average, so, <UNK>, I think there's still room for pricing to be had there. Look, I think the pricing story is still very much intact. I don't see anything materially different on it today than I would've said to you a year ago or two years ago. Keep in mind, the metric that we have always said ---+ and, frankly, we've been ahead of that metric ---+ is you could look at volume growth on a percentage basis and look at ASP growth on a percentage basis and expect them to be relatively close. What I would remind you is we had a whopping 1.5% volume increase last year, but you saw what happened to pricing, so clearly pricing got ahead of that. But, again, if we think about what our story has been on incremental margins, it hasn't changed and we are doing exactly what we said we would do in incremental margins. And if you think about the story that we have had for years on pricing, I think we are right there and I don't see any material change there. Well, I'll talk a little bit more about price than I will volume. I'm always sensitive to talk too much about our cement business with granularity, because we've only got two and when we talk too much about it we tell the whole world, including our competitors, what is going on with some of that. If we look at pricing where it ended up at the end the year, on an average, it was right at $102. We are looking at an $8 a ton price increase. We've got some confidence around that, particularly in North Texas, so we are going to be very focused on that. Again, if you look at the way cement worked overall in Texas last year, cement shipments were modestly down across the state. Ours were actually modestly up, so we feel pretty good about where that's going this year as well. The other thing that I would remind you on cement, because I think volume is going to clearly be an issue that will be even more helpful on price going forward, clearly people believe Texas is going to be better in 2017 than it was in 2016 and we agree. PCA actually believes Texas is going to be better in 2018 than it's going to be in 2017. So we think we've got a forecast on cement in Texas. PCA is saying up three in 2017; PCA is saying up 5 in 2018. So if you've got those types of numbers up and you still have a marketplace there that I believe has room on price, hopefully directionally that gives you a sense of how we are thinking about it, <UNK>. You know what. Here's what I would say to you: we are not going to have a problem delivering base to people. That's probably the safest way to think of it. Because if you think back to the downturn, <UNK>, so much of what was happening was you were having maintenance and repair work so you were seeing more clean stone go out than you were seeing base project go out because you weren't dealing with new projects. We do believe that FAST Act and the state initiatives will drive, not just in 2017, but probably 2017, 2018, 2019, probably into 2020, more new projects than we've seen and they will utilize a disproportionate amount of base. So I don't think there are issues there. I do think in some markets ---+ I don't think in the majority of markets, but I think in some markets you might be in a position to see some clean stone shortages this year. And I mentioned the fact that we might see some of that in Colorado. I can tell you there's some locations today that we are working to crush and put stone on the ground at times of the year that we typically wouldn't. And that gives you a good sense of how much we feel like might be coming our way. So I think at the end of it, <UNK>, there may be some pocket shortages. I don't necessarily see that as a bad thing in all respects. I do believe also that if there is significant issues not in given markets, but across the United States, on whether demand can be met, it's going to be more of a contractor issue as opposed to a producer issue. That goes back to the comment that I made in one of the earlier questions. I do think one of the things that can really benefit the United States, if we see a new transportation tax initiative that puts more money to this sector, is you will see more people come into it and the ability for the contracting community to execute on jobs will be amped up pretty considerably. Does that help. Yes, a couple of things. One, we have had an acceleration of timing to complete the Highway 34 Rock and Rail project. As you recall, that's in Weld County; it's north of Denver, because we want to make sure that we are meeting demand there. So we would like to be able to move that from what would have been 2018 or 2020 back into 2018, so we are accelerating that. If we are looking at the way that we really spent money this last year, I want to say $41 million went into growth projects, $145 million went into mobile, about $60 million on land, and then plant replacement at about $114 million. Then you've got just a host of others, but that gives you a sense of really how we are looking at this right now. So if you look at those two things, you are seeing a disproportionate spend on mobile, which makes good sense. That is incredibly safe capital because if you got one market that's picking up and one market that's slowing, the beautiful thing about mobile equipment is it's mobile and you move it from the slower market to the more robust market. The other thing that we saw toward the end of the year is we had some OEMs who were looking to move some inventory. The simple fact is we were able to be in a place to get an awfully good deal at the right time year. So what I believe we did relative to CapEx is almost in keeping with the conversation that I was having earlier with respect to M&A and that is we had the balance sheet and we had the moment and we seized the moment. If you go back and think about the capital priorities that we have, keep in mind organic growth and running the business from that perspective is really a high one and making sure we're taking down our cost of goods sold is an important one for us. The short answer is I think we will continue to invest capitally on a percentage basis the same way that I've just discussed with you, and I do think this is a year that we might see even some enhanced opportunities. <UNK>, I don't know if you ever saw the movie Back to School, but Rodney Dangerfield did the Triple Lindy in that, do you remember. There's no Triple Lindy in this one. This one is pretty much just straight up. We've got a lot of conviction around the price of where we've got it right now if there's ---+ I don't think there's any downside in what we put out to you on pricing. I tell you what, let me ---+ <UNK> is here and she's doing her best Kathleen Turner imitation today, so let me let her walk through that for you. Thanks, <UNK>. Oh my gosh. Okay, go to Wiki when this is over. Our capital allocation priorities are really the first being acquisitions that can bring value in the right quarters of growth; organic capital investment; maintaining a sustainable meaningful dividend, which is a reminder we increased our dividend in the third quarter of last year; and then it's return cash to shareholders through share repurchases. And that capital allocation priority hasn't changed. So if you're wondering if we are ready to fight sick, we are. Thank you again for joining our fourth-quarter and full-year 2016 earnings call. In sum, we are pleased that our record-setting performance was achieved due to the important characteristics that differentiate Martin Marietta. : our safety commitment, our strategically positioned assets in many of the nation's fastest-growing regions; our ability to achieve continued and consistent pricing gains for our valuable products; and our relentless focus on cost containment. Importantly, our strong performance throughout the slow and steady economic recovery demonstrates the powerful earnings potential of our business. We are confident that the successful execution of our strategic approach of developing leading market positions along high-growth corridors, possessing attractive near- and long-term economic characteristics, will continue to generate top- and bottom-line growth and enhance shareholder value in 2017 and beyond. Rest assured we will continue to focus on the operations of the Company, as well as the best practices needed not only to sustain Martin Marietta as the premier aggregates company, but continue our transformation into the one of the world's best companies. We look forward to discussing our first-quarter results with you in May. Until then, thank you for your time and continued support of Martin Marietta.

2017_MLM

2017

SPGI

SPGI #Thanks <UNK>. Well, first of all on indices, you know we have been diversifying our business in various ways. One of them is through different sorts of indices, as you mentioned, Fixed Income Indices. Right now that is a very, very new industry, so to speak. It's just recently had the large index complex started moving into organizations to see them more on a professional index managed approach to building up ETF products, et cetera. We think that that space is still wide open and one that there's not a lot of ETF volume and should be growing and we are hoping to play a much larger position there. Custom indices and factor indices are getting very popular, especially with family offices, sovereign wealth funds and investors that need some a benchmark to manage a specifically against risks or asset liability matching in their portfolio. We continue to see that as an area where we're investing and growing. We also have two other areas I want to mention. One is the ESG. We bought Trucost and Trucost is an organization that provides a very precise and high-quality climate and water and other sorts of environmental facts and environmental data. We were able to use that to build environmental or climate or other ESG type funds. We see a very high demand for data and analytics and now increasingly also for funds that have Incorporated ESG or sustainability or long-term growth-type factors, especially coming from sovereign wealth funds and from pensions and endowments in Northern Europe and some places around Europe and the United States, so that's another area of growth. Generally across the business, we're looking to see how we can capitalize off of the value of our data more and more, and see that as one of our growth areas and not just the traditional ways that we've had with AUMs and a fund approach and using our benchmarks into the fund areas. Data and data analytics is an area that we are looking at and that's where some of the other aspects to how the data is used, how we look at markets, et cetera, we're thinking there should be some opportunities there, as well. <UNK>, I don't have enough of a base of discussions yet to give you a scientific answer. I can just tell you anecdotally that every CEO and every CFO that we've been meeting with are studying the tax reform proposal the same way we are. There has been ---+ if you met with the largest organizations, the largest global organizations and if you look at their repatriation topic which we have not touched on, repatriation is one that also has a very large impact on companies and could have, as I mentioned in my comments, a shorter term impact on issuance if people brought back a lot of cash and don't need to go to the markets. We don't think it would have a long-term impact. But there's a lot of corporations that have literally ---+ there's a couple trillion dollars, $2.5 trillion we believe in overseas cash that could also go into that equation. I don't ---+ as I said, I only have anecdotal evidence. I do not have anything that's scientific yet. Each Company is impacted differently. If you went and met with retailers the import a lot of their products from offshore, if it's whether it's clothing, apparel, toys, electronics, et cetera, this ---+ the approach towards the border adjustability has a very negative impact on them. If you speak with large exporters like GE and Boeing and Caterpillar, border adjustability has a very positive impact on them. A lot of the CFOs of the more highly rated companies, the combination of a much lower tax rate and interest deductibility are kind of a wash. And so they would say that it's not going to ---+ the interest rate deductibility is not going to have any impact whatsoever on their issuance programs because net-net ---+ the after-tax cost is even going to be lower because the interest rate is lowered so much. Again, I can only be anecdotal. I would hope that as we get throughout the year and we get more specific proposals that I can give you better answers than I just did. But those are the kinds of factors that are being looked at in the kinds of conversations we've been having, but right now, it's all anecdotal. Yes, we will disclose that going forward, as well. So you should see that breakdown in the future. It's better than expectations. They had a target that when I share with you folks, they would accomplish it at this point in time and the $10 million target has exceeded ---+ the number has exceeded that target. So they were pleased with that. Once again, it's still early days because it's a lot of piloting going on as Cap IQ reps are going to Cap IQ customers and saying, look at our SNL product and let me show you how we do this. But to me, the biggest move really can't take place until you have one integrated platform. That's when you can really begin to shape customers' behavior more meaningfully. And that's not going to be for awhile. We're going to start beta testing that in the third quarter with a very limited number of customers. But we expect that, that will really be more the fourth quarter event when the Market Intelligence 1.0 platform is potentially ready for rolling out more ---+ on a more broader basis. But just a slight difference answer to your question, we are very pleased with the integration of SNL. It's been something that we made some very tough management decisions when we brought it on board in terms of how we're going to manage the organization of putting the businesses together which was not necessarily something that was very natural for this organization. And it's paid off by making those tough decisions right upfront and having an excellent management team from SNL that came on board and incorporated some of the best management from the Company that was already here. Generally speaking, we've been ahead of our target and we've been able to execute in a way that we've had very good financial performance principally from expense management. We are now focusing more and more on revenues and we have a few really good early wins. But I don't want to promise that we will get the same kind of speed of execution on the revenue synergies that we did on the expense synergies. But it's something we're tracking, we're watching and I'm hoping that we will. But it's a lot harder than getting expense synergies. How you should see our guidance is really middle of the road; it's neither conservative nor aggressive. That is the philosophy we apply. We think the guidance we have provided for 2017 is strong guidance for all aspects: high-growth, margin expansion, EPS growth, excluding the accounting change somewhere in the range of 8.5% to 12%. So we think this is very strong guidance we have provided. There's no particular conservatism in this. It's really considered middle-of-the-road. <UNK>, there's one more thing I would like to add to your view is probably similar to other folks out there. And January was a great month. If January was a horrible month, maybe that question wouldn't even come in but we can't concern ourselves with one month out of 12, because we know every single year, it's choppy from month to month. So we can't be swayed by one particular month as we think about our annual guidance. Well, let me thank everyone for joining the call this morning. As you see, we had a very memorable year in 2016. Although there was a lot of uncertainty in the market and a lot of change going on with things like the Brexit and the US elections, many of those uncertainties continue into 2017 and some of the topics we just talked about on issuance trends, tax changes, Dodd-Frank regulatory changes, et cetera. We have people all over those and generally speaking, we've got our entire organization focused on growth and excellence. We are very excited about the prospects of taking this reshaped, very cohesive portfolio going forward. We appreciate your interest. And for all of the shareholders on the line, we thank you for being shareholders in the Company and we are excited about the prospects despite some of the uncertainty in the markets, and we are very pleased you joined the call this morning. Thank you very much.

2017_SPGI

2016

MBFI

MBFI #What I disclosed, I think on last quarter's call, was the Fed rate increase had little impact on the margin for Q4. I also, I think, disclosed that the unusual re-accrual interest was about $1.5 million in Q4. So I feel like that was largely offset by the rate impact in Q1. That is why we ended up with the stable margin, was what I expected. Oh, sure. I think as you know, because you've followed us for some time, our leasing revenues do vary from quarter to quarter. And what we continue to recommend is that people take kind of a rolling four quarters of leasing revenue and really base their forecasts or projections for us on that sort of trailing four quarters revenue stream. Oh, yes, it's very sticky. It's just we have equipment and maintenance renewals that occur every quarter. We also get new business every quarter and we get promotional revenue every quarter. It just varies from quarter to quarter based on the magnitude of the contracts. I'm going to handle the first part of the question and then I will turn it over to Mike. If you think about the general reserve, okay, keep in mind that we continue to book a provision related to the Taylor loans and essentially what's happening is, the discount in the purchase accounting is moving from discount to a general reserve as time goes on. So that's part of the reason for the increase in the general reserve and then Mike will talk about the specific reserve. Let me start. This is Mitch. I'll start and then <UNK> will make ---+ add in. He'll correct whatever I say that's wrong. Right, you referenced putting the two companies together. To refresh everybody's memory, the Taylor/MB merger is August 2014. Everybody was kind of on defense for most of 2014, certainly post August through the end of the year as we went through systems conversions. Came into the first quarter 2014 all our bankers were fully back in the market, competing, doing the thing they do really well. We saw new business pickup in second, third, fourth quarter now the first quarter again. So I think it's four pretty good quarters in a row. To me, a lot of the results that we're seeing in a difficult, a very difficult market, are a result of fully engaged sales and relationship management team. We've got great bankers and I think they are doing great work in all our markets, whether it's in Chicago or across the country where we've got a number of national lending businesses that have developed the traction. This is <UNK> <UNK>. I just have a real brief addendum to that and that's that I think it was kind of inherent in what Mitch just said, but as you work together more as a team, bankers, risk people, the credit books, et cetera, et cetera, you ---+ as a lender you have a better idea of what can get done and how you can be successful in the marketplace. I think that really is an impact of now we've been together for a little over a 1.5 years and so it just continues to ---+ the comfort level enables you to be a little bit more confident the marketplace and market more effectively. You mean for ---+ yes, I think it is. I think it will continue to grow. But yes, I think that's a pretty good base number to start with. Okay, yes. Good question. You tailed off but the last part of your question was on M&A. Okay. I think our last dividend increase was second quarter 2015, so that's effectively four quarters ago now, right. Yes, I'm sure at some point here our Board's going to want to have a look at the dividend. Our capital generation rates are really good now. Don't forget, we're going to use $125 million or so of cash in our acquisition of American Chartered, so that's a pretty good use of capital. For me, I'm speaking for me, I mean ---+ step back. Our capital policy here basically looks like this. First, we need to generate enough capital to operate our business. Post that, we want to keep dividends at the highest sustainable level possible. So regular dividend at a rate that we are highly, highly confident sustainable in the very long term, even through all downturns and the rest. Given our increased earnings and our increased capital generation rates, I think it's logical for our Board to at some point here take a look at the dividend. Again, I'm sure that they will. No promises there, but it's an appropriate thing to do. And then on the M&A front, same comment. No change from last quarter and so I'll be really brief about it. Small, depository acquisitions are probably uninteresting to us just given the level of work involved and the opportunities we have within our own business currently to use our resources to enhance our current Company and not divert them to small M&A opportunities. If we do another depository transaction, it's highly likely that it would be in the Chicago marketplace and it's highly likely that looks something like American Chartered, who we're really excited about. Non-depositories could be anywhere in the United States. The size is a little less relevant because the integration requirements in non-depositories are much less intense and less diverting of critical Company resources, so that's that. Can't remember commenting about how manufacturing would increase lease originations in the fourth quarter, but I may have. I continue to think manufacturing is a risk, but that's neither here nor there. Look, I mean, our leasing business and all the components, it's a fantastic business. It really is, and in all regards. The returns on capital are very, very high. The asset quality, the kinds of leases that are originated or the kinds of lease loans that are originated are really, really great assets to have. The business has good growth on almost all fronts, which is really exciting, particularly our MB Equipment Finance has made the moves in the last quarter or so that are going to accelerate its growth, so I really like that. That's a piece you may remember, <UNK>, came in our Taylor merger. It was Cole Taylor Equipment Finance before we rebranded it MB Equipment Finance. LaSalle and Celtic continue to do really well. LaSalle's contract maintenance business has been really good. That's the one volatile part that I think gives people, if you will, volatility heartburn. The revenues on the contract maintenance side can be rather lumpy and that's the piece that is responsible for ---+ mostly responsible for moving that lease revenue line perhaps more than people are totally comfortable with. And that's why <UNK> continues to say, take a look at the four quarters prior. You can apply some kind of growth rate to that and use that for forecasting the future. I think that forecasting a business like that on a single quarter basis is really, really hard, but over a 12- or 15-month, 18-month period actually isn't that hard. It's a great business. I think it's going to continue to grow at really, really healthy rates. I think conditions are still, at least in leasing, feel about the same as they did a quarter ago or two quarters ago. Our volumes are quite steady. We haven't seen ---+ I don't think we've seen a drop off in originations related to the economy. I think there are some things moving around. For example, in the energy sector, obviously originations of any Company connected with that are going to be lower than elsewhere but in total, it's not a significant part of our business anyway and it's not a huge part of the economy. I like what we're doing. We continue to gain share. It's a great business run by great people. No, not really. I mean, those units existed in our Company before. Many or most, perhaps, reported to Randy, I think. Some did, some didn't. No, I think it was thinking about what experiences people could most benefit from in development as we made changes and who were the best people ---+ not the best people, but who were the right people to put on to oversee certain of our businesses to bring skills that they have and they had developed previously that could be additive to those businesses and make them better. We could ---+ honestly we could have shuffled the deck in a quite different fashion, too. We've got great people that are really multitalented and this was just an opportunity to make ---+ it's an interesting thing. It makes our Company better because we get a new set of eyes looking at existing businesses and existing functions, which is always a good thing. A new set of eyes can bring new ideas to people and help those people get better and help those functions and departments get better. It's also better for our people too, as we talked about, because they learn more. They get exposed to more things. I think the more that people understand about our Company, or any business for that matter, the better they are able to contribute to the whole. I think if there is anything perhaps that banking suffers from occasionally is having people who are very siloed who understand a great deal about a particular area and only one particular area of the Company. I think that overall that can be a detriment. One of the advantages that small banks have is you've got generally one or two, bright, executives that sit up top and understand how the entire Company works and can take action based on that very broad-based knowledge and so they can be really quick to market. They can work with clients across products sets. They can know how one ---+ a change in one part of the Company will affect the other part of the Company. And then as banks grow, as companies grow, I think people sometimes lose that ability and we don't want to lose that ability. We want people who understand ---+ a lot of people understand how our entire Company works and contribute across departments and across lines and know how one change in one area will affect another change, how customers can be served across our platform in a seamless way to try to back some of our revenues and share wallet. Just ---+ it's a good thing to do and we're very lucky to be able to do that to and have talented people who can take on those kinds of roles. Morning. I agree. MSA's doing a great job. They've added some new businesses in Q1. I'm very pleased with how they have integrated into MB Financial. I would, though, stick with the $0.01 or $0.02 in terms of impact in the first year. It's going to grow from there but I think let's stick with the prior guidance. I apologize. I should have been more specific. It's not auto. We do boats, we do RVs, we do motorcycles and again, a business that we've been in for 10 years anyway, maybe a little bit more. Particularly motorcycles. Right. So that's ---+ it is not auto. The other thing that I would add is that we've been pretty discriminating as it relates to credit scores and it's a portfolio that leans heavily toward higher credit scores. The other point I would add is when I look back over the performance of our indirect portfolio throughout the credit crisis, charge-offs were very well behaved and we are pleased with how the portfolio performed. Hi, <UNK>. The normal sequence, and I'm beginning to think that this actually might be changing. But the normal sequence would be fourth quarter is best for loans and deposits and it's almost always by far the best. Second quarter second-best, third quarter third-best and first quarter weakest. So, four, two, three, one. But I wonder if that trend is beginning to change and is beginning to even out. We'll see after a few ---+ I guess another year passes, we'll see if that is true we get into first quarter 2017. Because I say I wonder if the trend is changing because the summer quarter, right, third quarter last year was good, growth for loans and deposits. I'm hoping it changes. I would like very much to have a much steadier growth pattern. We may be getting there. I don't really think that has impacted anything from ---+ at least what we've seen from our perspective. If you look at our deposits and what happens there, it's a function of many things, but I think primarily two. One is that it comes from the growth in our commercial businesses. Our customers, basically they have one bank so we have everything. We're going to have all their deposit business so when we originate loans and new loans to clients and new loans with clients that are growing, that is going to have a positive results on deposit growth. The other thing ---+ there are two other areas that are very, very important to us and one is just the plain retailing. We've got 80 branches. We've got a very heavy sales culture in our branches and they are very consistent with it and so the traditional retail business is growing a little bit. And then the third one is our business banking and we like our model. It's very branch centric and it's been very successful and again at very sales driven culture that emphasizes deposits. That's through the way we incent our bankers et cetera from the deposit perspective. I would say those are the factors. I'm not certain of the other impact. I'm just not sure. Sure. Hey, <UNK>. Okay, so I'll start and if anybody wants to jump in and add more detail. Breaking it apart, international banking provides international financial products to our middle market clients and that's just a very steady business. People need foreign exchange services, trade letters of credit, things like that. It kind of grows as our client base grows and as we further penetrate our client base. Remember, that business started about six years ago, and six years sounds like a long time but there's still opportunities even after six years to add product to our current client base. Capital markets, the majority of the revenue is on derivatives, which said another way is helping protect our clients from rising interest rates in the future. So interest rate swaps, things like that. There's a few other products in there too, but that's the majority of it. Anybody want to add. No, I think that's ---+ that covers it. Interesting question. I would think as people become more fearful about rising rates, particularly if they rise rapidly, which doesn't look like it's going to happen but if that would ever happen, you'd think people would want to buy, if you will, more insurance against raising rates to protect their investments or their property against raising rates. I think that our capital markets business would do better in that environment. I don't think people though at the moment are really worried about rapidly rising rates and so I think the level of activity is kind of normal, if you will, at this point. I might add that our capital markets group does more than derivatives. They also provide mergers and acquisition advisory services, which I think we've got a really good team there. They provide real estate debt placement and capital raising services as well and that's pretty good. Those businesses are growing, growing slowly. I think the seeds are planted and they are going to do well. They should contribute to revenue growth in the future. There are some, but it's not what you might think of. I mean, many of our clients that are impacted by what's going on in Springfield have traditionally had pretty strong balance sheets. They've had a liquidity that's been on the balance sheet for some time and in many cases they have the ability to raise money from either boards or other constituencies that they've dealt with for a long time. It's really primarily, at least from what I've seen and Mike <UNK>, you may have another thought on this, but it's primarily been impacting the social service agencies. Those are ---+ that's the area where we've seen what little we've seen of problems but that clearly has been a problem. Some have cut back services dramatically and some have had to shut down but that's typically how we've seen them care for the issue is kind of pass a hat, if you will, among their various constituencies to be able to keep their doors open for as many different ---+ to provide as many services as they possibly could. Mike, I don't know if you have any color that. I want to add one more thing. <UNK> and Mike talked about social service agencies. The other sector of the private companies that are ---+ have meaningful amounts of state revenue, particularly nursing homes. The thing about our nursing home operators, I think people in the industry in Illinois, nursing home industry in Illinois, is they are used to these cycles. There have been a number of times in the past when the state has been late in making payments, as late as eight, seven, eight, nine months in making payments so they've long maintained lines of credit and other means to fund that kind of late payment. In other words, they're kind of used to it. No, I don't have an update on that. We're continuing to study the issue carefully. We formed some time ago a technology committee of our Board of Directors because we thought it was so important. That committee is getting around to doing its work. Listen, if something material changes, I'll surely let you know. But at the moment, it's business as usual. You're asking in terms of expectations for mortgage profitability for the rest of the year. I'll let Randy <UNK> answer that question because Randy's been very involved with mortgage. <UNK>, it's <UNK>. I'll just go back to comments we made a few minutes ago on the call. As it relates to ---+ and I think I use this terminology maybe in the third quarter last year of our people, I think, are kind of hitting their stride. They're getting comfortable with each other. They know what we can do. I think that makes them more efficient. They're not running at opportunities that aren't going to come to fruition. I think we're more consistently in the market and doing it with really a good number of people. Plus the fact that at the end of the day, we've got a nice market share and we like it but it's not huge. It's not like having a 30% market share in a market like this and so we feel there's continued room to expand. I think it's kind of a combination of those things. Thanks, <UNK>. Okay, thanks everyone. Thanks your attention, your participation today. Your support is much appreciated and we'll talk to you again in around three months.

2016_MBFI

2017

EIG

EIG #Thank you, Valerie. Good morning, and welcome, everyone to the first quarter 2017 earnings call for Employers. Yesterday, we announced our earnings results and today, we expect to file our Form 10-Q with the Securities and Exchange Commission. These materials may be accessed on the company's website at employers.com, and are accessible through the investors link. Today's call is being recorded and webcast from the Investor Relations section of our website, where a replay will be available following the call. With me today on the call are Doug <UNK>, our Chief Executive Officer; Steve <UNK>, our Chief Operating Officer; and our Chief Financial Officer, Mike <UNK>. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent developments. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial metrics, including those that exclude the impact of the 1999 Loss Portfolio Transfer, or LPT. Reconciliations of these non-GAAP metrics are included in our new financial supplement as an attachment to our earnings press release, our Investor presentation and any other materials available in the Investors section on our website. Now I will turn the call over to Doug. Thank you, <UNK>, and thank you all for joining us on our call today. Our first quarter was a strong start to the year. Net income before the LPT increased $0.05 or 9% per diluted share. We reported operating income of $0.57 per diluted share, an increase of 6% with an annualized operating return on adjusted equity of 8%. Operating return was flat year-over-year as we built shareholders' equity. Net premiums written increased 4% related to higher final audit premium and new business. We delivered strong new business growth in the quarter as we continued to actively seek and find opportunities that need our underwriting requirements. Book value per share of $32.20 increased 2.3%, including dividend declared in the quarter. These favorable results reflect the successful execution of our marketplace strategy, our consistent and deliberate portfolio strategy, and underlines soft market trends, which have remained largely unchanged. Underwriting results continued to be strong evidenced by a combined ratio of 96.6%. Our slightly lower accident year loss ratio of 63.8% reflects our expertise in pricing and risk selection as well as our initiatives to close claims early and grow our in-force policies and premium and attractive business class. As in recent reporting periods, our markets remained highly competitive while in general rates went to improving loss cost continued to decline. In light of these market conditions, our overall retention in the first quarter remained high. Renewal premiums remained relatively flat for the first quarter year-over-year, with increases in payroll exposure being largely offset by 1.8% decrease in our renewal average rates. Additionally, we are actively engaged in multiple technology and analytics initiatives, as well as the multiyear replacement of our policy administration system. With that, I'll turn the call over to Mike for a more detailed discussion of our financial results. Thank you, Doug. We delivered solid financial results in the current quarter in line with our expectations. Before I begin my review, I want to point out that we recently adopted a new accounting standard that impacted our reporting of tax benefits from stock-based compensation. As a result of this new accounting standard, we recorded an $800,000 reduction to our income tax expense for the first quarter of 2016 versus what we presented a year ago. This reduction in income tax expense served to increase our net income and our earnings per share for the 2016 period but it had no impact on our stockholders equity or our book value per share. Net investment income for the first quarter increased period-over-period reflecting higher investment balances and to a lesser extent a change in the mix of invested portfolio assets. At quarter end, our fixed maturity portfolio at an average pretax book yield of 3.1% and a tax equivalent book yield of 3.6%. Net realized gains for the first quarter increased period-over-period, as sizable prior year gains from the sales of equity securities were largely offset by other than temporary impairments. Net premiums earned for the first quarter increased 2% period-over-period, due to higher final audit premiums and new business writings. Our first quarter combined ratio before the impact of LPT of 96.6% was slightly lower than a year ago driven by a lower current accident year loss provision rate. Our commission expenses and the associated ratio for the first quarter were each higher period-over-period. The increase in our commission expenses was due to higher base commissions for the current period and a favorable prior year true-up of agency incentives, which served to lower commission expenses in the first quarter of 2016. Our underwriting and other operating expenses and the associated ratio for the first quarter of 2017 were each lower than a year ago. These decreases were driven by lower bad debt expense, premium taxes and assessments. Our effective tax rate was 21.4% in the quarter consistent with that of the first quarter of 2016. As of March 31, 2017, the market value of our investment portfolio was $2.6 billion, an increase of 3.6% from a year ago. At the end of the first quarter, our fixed maturities had a duration of 4.3 years and an average credit quality of AA- and our equity securities represented 7.7% of the total investment portfolio. Our balance sheet remains strong, and we intend to continue to actively manage our capital through common stock dividends and when feasible, common stock repurchases. And now, I'll turn the call over to Steve. Thank you, Mike, and good morning. Net written premiums for the quarter of $196.1 million were up $7.4 million or 3.9% from the first quarter of 2016. This increase occurred despite a declining rate environment in nearly all of our states as well as a very competitive market. The primary drivers of this increase were final audit pick up as well as an increase in new business revenue. The increase in final audit pick up can primarily be attributed to increases in payroll at final audit. The policies audited during the quarter in our top 15 classes of business from a payroll standpoint, every class exhibited growth in payroll when measured at final audit compared to payroll at policy inception. Several classes exhibited double-digit growth. This growth is driven predominantly by increased hours of existing employees as well as increases in the number of full-time equivalent employees. This trend is a continuation of what we've seen in 2016 as well. New business premium growth over the prior year first quarter was driven by growth both in states that we recently entered such as New York, Connecticut and Massachusetts, as well as many of our states where we have had a long-term presence, such as California and Florida. We also grew our new business year-over-year in both our traditional distribution channel of independent agents as well as with our alternative distribution channels. Overall, our new business submissions grew 6.7% from the prior year. With respect to our alternative distribution channels, we continue to see strong growth with most of our partners in this channel. In the first quarter, these partnerships generated 25.6% of our in-force premiums, which is up over the comparable period in 2016, when the in-force premium share was 24.1%. Retention rates on existing policies continued to be strong with no deterioration from the first quarter of last year relative to unit retention rates. This is driven by strong retention rates on our small policies despite additional pressure from a competitive standpoint on larger middle market policies. Claim trends continued to be positive during the quarter with overall frequency declining from the first quarter of last year and continuing strong execution on claim closure initiatives. We are currently investing in analytics initiatives in the claim management area, which in the future will enhance our already strong claim management results. And now, I'll turn the call back to Doug. Thanks, Steve. We continue to deliver strong underwriting and financial results driven by our specialist approach, a disciplined underwriting and our consistent and deliberate investment strategy. And with that operator, we'll now take questions. 4%. $4 million. I'm sorry, $4 million We're looking that, <UNK>. I don't think we can pull that number up, <UNK>. By the way let me backup to the first question you had. It's $4 million higher this quarter than it was the previous quarter, just to be clear on that. And I'm sorry your follow-up question was. No, I don't want to point out specific classes, in particular, some of our larger classes though have had either double-digit or close to double-digit growth. I would say at this point, we are still considering that the pricing is staying ahead of the loss trends. I mean we continue to have strong loss ratio results, I don't anticipate that changing in the future. So I would say that we're very comfortable where the pricing is relative to the loss trends. Yes. I'm very satisfied with what we've seen this quarter. There is a lot more competition that's out there. I would say like we've said historically, that our expectations that in terms of new business opportunities will be potentially moderately up like it was this quarter or potentially flat. The submissions increasing is generated not only by the new states that we've entered, which is helping us, but also the fact that some of the existing states that we're in were leveraging our partnerships even more effectively than we have in the past and that's led to new business submissions growth even in those states. So I would say that I'm optimistic that those trends should continue. The capital management strategies is unchanged. We did increase our dividend last quarter continued through this quarter. In terms of share repurchase, that is always a very important rule for us in capital management. We've always been opportunistic when it comes to utilizing that tool, so I wouldn't expect our view to change on that. And then finally, given the profitability that we're seeing in the books, it would be our expectation if that continues, we will see a buildup in capital. And the result of that is we'll either look for opportunities to deploy the business, opportunities to deploy through an acquisition, and again, I think our views on that are fairly well known. And then finally, return to shareholders failing either of those other 2 alternatives. I've got 2 quick follow-ups. Number one, is going back to the rate versus loss cost discussion. What do you think the GAAP would be right now. If I had that number, I wouldn't disclose it. But I'll certainly support Steve's comments. Our view is that it continues to be favorable. And has it narrowed over the past few quarters rapidly maybe just to hover that a bit. Well, as I was thinking about that as Steve was answering the question. If you look back and see the decline we had in our loss ratio over the last 24 to 36 months, clearly, that's not going to continue forever. We don't see the loss ratio go up into 10. So it is clearly going to flatten and that's going to be influenced by the competitive marketplace. And at some point, the continuing loss cost trend that we're seeing in virtually every state is going flat. Now I can't predict when that's going to happen but at least at the current time, we believe, we still have a favorable gap there. That's very helpful. The only other question I have is going back to the broader discussion of competition and I know that you being a special tender writers sort of insulates little bit. Can you just talk about that a bit more, where do you see it coming from, is it the largest companies, the smaller companies, the same players, or new players. Just help us sort of put that into perspective because most of the companies have been talking about increased competitive pressure some kind of figure out, where is this exactly coming from. Let me address that question. And I'll contrast to today to what we were seeing maybe 18 to 24 months ago. From 18 to 24 months ago, the most aggressive competition would have been coming from a handful of market participant. They weren't always the same, it somewhat depended on what part of the country you were in but there were some that were fairly aggressive everywhere. Contrast that to today, we are seeing pretty consistent competition across the market. There will still be occasions where companies might be standout in terms of how aggressive they are. But there is a broad market competition everywhere we do business and most market participants are fully engaged in the competition. And so I think that's reflective of the environment virtually everywhere. In terms of our strategy, I think it's a very interesting question because what we are seeing is that our small business focus is holding up extremely well in this part of the cycle. So when you start looking at accounts that are larger for us, say $50,000 and above as an example, a much more competition around price than we're seeing on the smaller accounts. And realize that roughly, 60% of our premium and 95% of our policies are coming from that smaller segment. And it's doing extremely well in this market cycle as evidenced by a very high retention rate and a very strong ---+ and in terms of policy units and a very strong premium retention despite declining renewal rates. And so I think our strategy is looking very good right now and I think our specialty focus positions us very nicely in this part of the cycle. Well, let's start with the observation that I made in my comments earlier that as specifically as to our policy administration system, that is a multiyear implementation and rollout. Because of the nature of that project, a large part of that is capitalized. There will be smaller amounts that are current period expenses but that's principally a capital project. And so you won't start to see that fully impacting the financial statement until the implementation dates. In terms of some of the other initiatives that will be driving expense and we commented on this previously, we are building out our analytic capability that tends to be less of a technology expense issue although, there are components of that clearly, that tends to be more headcount related and it tends to be more consulting related. And for the most part, those are shorter term projects that will likely have a more immediate impact on the expense ratio. So all in, some hits current, some will be capitalized will hit future periods. I can't really detail for you exactly when those will hit but it's really a combination of current and capital. Yes. So let me describe kind of what happens there. On the front end, there will be some internal cost relating to standing up a new state, and again, those tend to be more on the technology side, but probably not material. When we enter a new state, depending on which state it is and I'll use New York as an example, there is a requirement that we put boots on the ground so that we can actively recruit and manage our agency force. Again, that's a relatively small expense. Everything else is really not an incremental cost to adding an additional state beyond those 2. So it's a fairly quick ramp-up. And then, depending on the success we have, there may be a need to deploy additional sales resources but our expectation is that those would rather quickly pay their own way. Certainly, our data is suggesting that to us. And I can assure you, we spend a lot of time talking about this internally because what we're observing in our book of business appears to be inconsistent with what we're hearing on a national level. And to my comments earlier, our specialists strategy in these low hazard accounts seems to be doing extremely well in this market cycle. And so I don't think our results are consistent with what you're seeing in the broader economy. Very good. Thank you everyone for joining us today. We appreciate your participation, your good questions, and we look forward to speaking with you again next quarter. Thank you all very much.

2017_EIG

2016

CACI

CACI #Yes. It's like the $64,000 question this morning. We do have ---+ I've not going to get into too much because we're right in the middle of the RFP, and that will be delivered here shortly. Look, whenever you go to compete, you look for an opportunity to discriminate yourself from whoever it is you are competing against, and there are multiple ways of doing that. In our particular case, we think we do it with a set of very innovative approaches to this one particular job, using commercial, well-known commercial both processes and capabilities that have not been seen inside of this space before. And then they're arrayed against some more traditional ways of solving a very similar problem. Look, I'm not giving you a lot because I don't intend to give you a lot on that subject. I believe that we have a reasonable chance at that opportunity. That's why we made the investment in talent, in the teaming that we have done, in the relationships that we have built throughout that customer community. So we'll see what happens. It wouldn't surprise me if we lost; but I'm not going to be greatly surprised if we win. We understand that job very well. We believe we understand what the customer wants. And the second part of your question had to do with ---+ maybe they already cut him off. If you want to come back on, <UNK>, I forget what the second part of your question was. Yes, <UNK>. Prior to this kind of adjustment when we on a quarterly basis rolled the backlog, we looked what was in our system and used that as the basis for the backlog. Just a bottoms-up addition of tens of thousands of line items in backlog. What we did not consider was the period of performance, and so we did not explicitly exclude items for which the period of performance has lapsed. The change we have made and is reflective of the adjustment, quite simply is if the period of performance has lapsed there is very low probability we will realize revenue; and as a result of that we are excluding it from the backlog calculation. Yes, the total acquisition revenue in the fourth quarter was $263 million. And for all of FY17, we expect it to be approximately $600 million. We attributed that to NSS. The acquired revenue on the other acquisitions is relatively small, and so we around to $600 million. Yes, that's still the right number. That's still the right ballpark. Well, thank you, Jason. Thanks for all your help today on the call. We would like to thank everybody who dialed in or logged on to the webcast for their participation as well. We know that many of you will have follow-up questions throughout today or the rest of the week; and <UNK> <UNK>, <UNK> <UNK> and Dan Leckburg are available for calls later today or throughout the week. So this concludes our call. Thank you. We appreciate your interest in CACI. Have a very good day.

2016_CACI

2016

NEM

NEM #Thanks, <UNK>, for that question. I would expect that accounts receivable to come down. We had unusually high sales compared to production in the first quarter. We had mentioned at the end of last year we had some Batu shipments that did not make it through to sales and so we had that come through in the first quarter. We will be expecting to ramp up some of the capital costs in this quarter. The Yanacocha dividend, we don't factor that into free cash flow. That was more of a financing activity of moving that through, similarly to Regis. No. I do not think we would be doing that on a regular basis. It is something we want to make sure we leave enough cash at Yanacocha to fund the upcoming activities and what might be happening but we felt that there was enough cash there and we felt it was appropriate to dividend it out to all the partners, including to us at corporate which allows us to use some of that for debt pay down and things like that. Two things. One, it is partially through the year but also perhaps the bigger factor is we are spending a little bit less on capital so our capitalized interest goes down. Our guidance is expense. We have some that moved to capitalize interest in that number has gone down similar of its days in expense. That's really part of the deal terms that we will be working through so I think best to hold that question if we're ---+ for another time. Thank you. Good question but fits all within the overall elements of the deal terms that we are working through, so nothing more I can share at this stage. I believe that, that ---+ should be able to find what you need in the (technical difficulty). Let me get back to you on that. I'm familiar with the loan balances I'm just not sure where to point you to point that out. We'll come back to you on that. I don't think it's specifically disclosed in our Q. Okay. I'll take the first part of that and then have <UNK> cover that on the second part in terms of what debt we would target. If we are successful, the cash proceeds we would see being used both to continue to pay down debt as we work towards our net debt-to-EBITDA ratio of one at a $1,200 gold price and then use proceeds to continue to fund our own organic growth projects that we see ---+ we have the best organic growth pipeline in the industry. Wouldn't see it accelerating but use the cash to invest in those projects where they make sense, where they're profitable. In regards what debt we target, I'm going to hand over to <UNK> to cover that. Thanks, <UNK>, and thanks, <UNK>, for the question. I think we would definitely continue to target a mix but as we get closer to some of the near-term debt, we might prioritize that a bit more than what you saw in the tender that we just executed. Our targeted debt reduction payment does not rely on these proceeds. That's what we believe we can do from our operating performance. Obviously, if we did get these proceeds and use that to pay down debt, we would exceed that number. And what we've achieved already here in the first quarter has put us on pace to not only meet but likely exceed that target that we put out there for the next three years. Thanks, <UNK>. What we have is the Batu Hijau production is in there in 2016, 2017, also 2018, 2019 and 2020 but then we're processing off of stockpiles. What we've not included is the phase 7 investment, so that is not in the capital guidance and it is not showing up in the cost. It is primarily capital and the capital range we would expect is $1.7 billion, $1.8 billion. That would begin in 2017 if we were to move forward. But to do that, just as a reminder, we would need have our contract to work changes defined and agreed and we would need to have, as we've done with phase 6, we would need to have third-party financing, non-recourse project financing that would be set up to do it. And of course, it would have to make economic sense and have the returns to fit in that area. Those would be the three things. Back to your key question on guidance, we have not included phase 7 but it does show phase 6 through 2016, 2017, and then the processing of ---+ it is as a would've been back if you go back and take a look at 2014 and the first part of 2015 in terms of production levels. I did not follow the question. Say that again, <UNK>. Those numbers ---+ I can't comment, really, on what's in the press. I think will we look at the value, there is a value for phase 6 and there is a value for phase 7 out there and beyond. Those would be the pieces that we would be looking at so when I talk of the development cost for phase 7, that does not include the revenues and the value you get from phase 7 and of course it didn't pick up the value we get for phase 6 in the equation. No. The only requirement that we have under our contract to work is a further 7% divestment. That has been on the table with an agreement to sell and the government hasn't progressed that an almost five years that we've had that agreement. I don't see ---+ divestment has never been an issue in our discussions with them on the contract to work. We've divested already 44% of our interest there and that has not been an issue with the government. Thanks, Elliott. Thank you very much. Thank you for joining our call this morning. Our team continues to deliver strong results as we did here in the first quarter of 2016 by driving safer and more efficient operations, a portfolio of longer-life, lower-cost assets, an experienced and successful exploration team, an exceptional project pipeline and success rate, and a stronger balance sheet and credit rating. We will continue to build on these foundations as we work to make Newmont the world's most profitable and responsible gold business. Thank you again and have a safe day.

2016_NEM

2016

INTL

INTL #Good morning. My name is <UNK> <UNK>, CFO of INTL FCStone. Welcome to our earnings conference call for the fiscal third quarter ended June 30, 2016. After the market closed yesterday, we issued a press release reporting our results for the fiscal third quarter. This release is available on our website at www.intlfcstone.com, as well as a slide presentation, which we'll refer to on this call in our discussions of our quarterly and year-to-date result. You'll need to sign on to the live webcast in order to view the presentation. Both the presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we're required to advise you and all participants should note the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company's actual results will not differ materially from any results expressed or implied by the Company's forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Sean O'Connor, the Company's CEO. Thanks, <UNK>. Good morning everyone and welcome to our fiscal 2016 third quarter earnings call. This is one of our strongest set of results from a core operating point of view, with good growth in almost all areas of our business. This quarter saw some significant market turmoil over Brexit, and generally a somewhat elevated level of volatility across most of our products. Once again, our revenue diversity and the fact that our business model is not dependent on taking a directional view continues to serve us well. We recorded net income of $14.6 million or $0.78 a share, up 26% from a year ago, this was boosted slightly due to our recent share buybacks. Net income and EPS was roughly in line with the sequentially prior quarter. This resulted in return on equity for the quarter of 14.1%, close to our long-term target of 15%. Our core operating results for the third quarter, as represented by aggregate segment income, was up 20% versus the prior quarter, while the year-to-date results were up 13% over the prior year. Overall, net income was positively impacted for the quarter by mark-to-market gains on our portfolio of interest rate instruments held to enhance the return on our exchange-traded client deposits. However, this gain was more than offset by gold inventory held in Singapore and Dubai over the quarter that was not mark-to-market, while the related hedges were. On a year-to-date basis, our earnings was $37.9 million, up 10% from a year ago, and EPS was $2 a share, up 12% from a year ago. Our ROE for the nine months period was 12.4%. On a segment basis, the third quarter performance was summarized as follows. <UNK> will go into more detail later. Much stronger results from commercial hedging, thanks to a nice pick up in both the exchange-traded and OTC volumes for the grains group in US, London and Brazil. Continued good growth from securities with a 58% increase in our fixed-income revenues, offset by a slight 5% decrease in equity market making revenues. Clearing and execution services posted solid gains, and we saw a nice positive result from the physical commodity segments. Global payments recorded flat revenues and a slight decline in net segment income, despite a 43% increase in payment volumes. This was due to the high bar set by exceptionally positive market conditions in the prior year. During the quarter, we managed to hit a couple of notable milestones. A record trailing 12-months EBITDA of $116.5 million, best quarter for our rates business. June was a record month for our domestic grains group. Best quarter in recent history for our precious metals business, and one of the best quarters we've had for our in clearing and executions group. Comparing the nine-month results of the prior period, the securities income has provided the lion's share of the growth in revenue and segment net income, offset by lower revenues and income in commercial hedging with the other segments being roughly unchanged. This was another active quarter in terms of share buybacks, where we repurchased approximately 350,000 shares at an average price of $26.23. In aggregate, over the last five years, we have now repurchased over 2 million shares at an average price of $21.90, which is now below the current book value of $22.59 and less accretive and also below the current market price. A couple of strategic items to comment on. During the quarter, we closed the Sterne Agee acquisition. We have discussed on many of these calls, our desire to complete our product offering by adding securities clearing. This acquisition was an excellent opportunity to do this and we now believe we are uniquely placed as a mid-sized financial services firm to execute and clear all asset classes for our customers. The securities clearing business has consolidated rapidly over the last five years or so, providing a good opportunity for a well-capitalized credible, mid-sized clearer to become a significant player in this segment. We see the same consolidation happening in futures, although probably a few years behind the securities market. Some details on this acquisition. This business was acquired for tangible book value. The total net assets in the acquired companies was approximately $48 million, the bulk of which is surplus cash. The clearing entity requires less than $10 million of regulatory capital and some additional working capital to operate. Our intention is to apply to FINRA to merge this entity into our broker-dealer FCM to allow us to better realize operational and capital synergies, and of course to release that surplus cash. The clearing business currently has 50 clearing relationships. In addition to the clearing entity, we acquired an independent wealth management platform that is a significant customer of the clearing entity. Together, this brings $11 billion in client assets and over 100,000 accounts to our platform. In aggregates, all of these businesses are currently running at losses of around $3 million to $5 million pre-tax per annum. We believe that we'll be able to attain a breakeven or better run rate within 12 months or so. Longer term, we believe that this capability will be a significant driver of incremental earnings and will achieve our target return on allocated long-term equity. Some of you might have seen the day before yesterday that it was announced by the UK anti-trust regulator, The Competition and Markets Authority, that we have been approved as a suitable counterparty to take on ICAP's oil trading business. This is still subject to final approval by the regulator and a number of other conditions precedent. This is driven by the sale of ICAP's voice-broking business to Tullett and in terms of this arrangement they were required to divest of the energy business to an entity that would retain the pre-existing level of competition in the industry. This is a well-known team and with a significant and well-known clients base. So with that, I'd like to hand over to <UNK> <UNK> our CFO for more detailed discussion of the financial results. <UNK>. Thank you, Sean. I would like to start my discussion with the review of the quarterly result. I'll be referring the slides and the information we have made available as part of the webcast. Specifically, starting with slide 3, which represent a bridge between operating revenues for the third quarter of last year to the current year, fiscal third quarter. As noted on the slide, third quarter revenues were $175 million, which represents a 15% increase as compared to $151.6 million in the prior year. Looking at the performance within our operating segments, the most notable change was a $9.7 million or 16% increase in commercial hedging segment operating revenues. Driving this improved performance was a 17% increase in both exchange traded volumes and corresponding revenues, primarily in our domestic grain business, as well as with agricultural customers in our London operation. In addition, commercial hedging OTC revenues recovered, adding 15% over the prior year period to $29.2 million as a result of increased revenues and our interest rate swap in Brazilian grain business. The second largest increase in operating revenues was in our security segment, which added $5.1 million or 14% versus the prior year. Within securities, the highlight was our debt trading business, which had a record quarter, adding $8.7 million in operating revenues. This gain was partially offset by both a $800,000 decrease in equity market making as volumes declined 20% versus the prior year, and a $2.9 million decline in investment banking revenues, following management's decision to exit the domestic investment banking business in the fourth quarter of last fiscal year. Next, clearing and execution services operating revenues increased $3.8 million or 13% as a result of a 7% increase in exchange traded volumes and an increase in interest income. Physical commodity operating revenues added $3.6 million or 88% over the prior year, as volatility in precious metals have a widening of spreads in customer activity and onboarding, both picked up in our physical ags and energy business. Physical commodity operating revenues were tempered by a $3.1 million unrealized loss on derivative positions held against precious metals inventory carried at the lower cost of market value in our non-broker dealers subsidiary. This unrealized loss will reverse in the fiscal fourth quarter of 2016 as the inventory was sold at its then prevailing market value early in the month of July. Finally, global payments segment operating revenues were relatively flat, adding $200,000 over the prior year to $18.4 million. While operating revenues were relatively flat, the number of payments increased 43% versus the prior year period. Moving on to slide 4, which represent a bridge from third quarter pre-tax income in 2015 to the current period. Overall pre-tax income increased 24% to $21.4 million in the third quarter of 2016. Similar to the discussion of operating revenues, the largest contributor to increase in pre-tax income was the performance of the commercial hedging segment, which increased $6.7 million versus the prior year. The $4.8 million negative variance in corporate unallocated overhead, primarily driven by higher fixed compensations, related to the build-out of our IT department, as well as higher variable compensation related to improved company performance. Partially offsetting these increased expenses was an increase in revenue in the corporate segment. During the current year, we recorded a pre-tax unrealized gain of $2.7 million, and US Treasury notes and interest rate swaps held in our interest rate management program. The bottom of slide 8 of the presentation shows the after-tax effect of these unrealized gains and losses in this program by quarter. In the prior year comparative quarter, we had recognized a $1.2 million gain on the sale of InterContinental Exchange. Finally, all of the other segments recognized incremental changes in pre-tax income in line with the change in operating revenues versus the prior year with the exception of the global payments segment, which declined $300,000 versus ---+ despite the growth in operating revenue. This is as a result of increase in non-variable direct expenses, including trade system costs and hosted conference expenses. Slide 6 shows the interest income on our investment in our exchange traded futures and options business, which hold our investable customer balances and encompasses our interest rate management program, excluding the mark-to-market fluctuations I just mentioned. The continued implementation of this program, an increase in short-term interest rates and a 26% increase in customer deposits led to an underlying increase in interest income shown here of approximately $900,000 versus the prior year period. Moving on to slide 7, our quarterly financial dashboard. I'll just highlight a couple of items of note. Variable expenses represented 60.6% of our total expenses for the quarter, exceeding our target of keeping more than 50% of our total expenses, variable in nature. Non-variable expenses, which are made up of both fixed expenses and bad debt expense increased $4 million or 7%, driven primarily as a result of increased compensation and benefits related to our expansion of our IT department, and an increase in depreciation and professional fees. Net income from continuing operations for the third quarter was $14.6 million versus $12.2 million in the prior year period, which resulted in a 14.1% ROE, which was near our target of 15%. Finally, in closing out the review of the quarterly results, our book value per share increased 12% to $22.58 per share, driven by both the trailing 12-month results and our share repurchase program. Next, I'll move on to slide 9 for a discussion of the year-to-date results. This slide demonstrates strong revenue growth in our securities segment, which added $46.2 million in operating revenue. Primarily in debt trading, which added $38.6 million and equity market making, which added $5.7 million. The increase in debt trading was a result of the acquisition of G. X. Clarke, our institutional fixed income dealer, which had a record quarter. And since it was acquired on January 1, 2015, only contributed operating revenues beginning in the second quarter of the prior year period. The physical commodities and CES segments increased operating revenues of $4.5 million and $4.2 million respectively as a result of increased customer activity, while global payments added $2.3 million in operating revenues versus the prior year, on a 31% increase in the number of payments made. These increases were tempered by a $13.3 million decline in operating revenues in our commercial hedging segment with a $6.2 million increase in exchange traded revenues more than offset by a $19.3 million decline in OTC revenues as a result of lower customer volumes in the global agricultural and energy market. Moving on to slide 10, which represents a bridge from pre-tax net income in the prior year-to-date period to the current year. Similar to the growth in operating revenues, the largest driver of the growth was the securities segment, which was partially offset by weaker performance in commercial hedging. Physical commodity segment declined $1.6 million, primarily as a result of increase in bad debt and interest expenses. These gains were partially offset by $12.5 million increase in unallocated overhead which is primarily incremental cost from the acquisition of G. Clarke, higher variable compensation, the expansion of our IT department, and an increase in meetings and hosted conferences. These increases were partially offset by lower professional fees, primarily legal expenses. Finally, moving on slide 11, the year-to-date dashboard, I'll highlight just a couple of metrics. Net income from continuing operations has increased 10% over the prior year-to-date period to $37.9 million, which represented a 12.4% ROE for the current year-to-date results. In addition, we've exceeded our internal target for the year-to-date period in average revenue per employee, which increased ---+ which reached $523,000 per employee in the current year. With that, I would like to turn it back to Sean to wrap up. Thanks, <UNK>. We continue to see that our diversified and customer-centric approach delivers a best-in-class return to our shareholders. We continue to organically grow our client base, drive cross-selling where appropriate, we discussed this in detail on the last call and add capabilities to strengthen our position in the changing financial services landscape. We are now able to provide execution in clearing services for our customers across asset classes and markets in an environment where customers are looking to reduce the number of counterparties and better manage their collateral and exposure. So with that, I would like to turn back to the operator and open the answer and question session if there are any. Heather. Okay, thanks, Heather. So, no questions. Thanks everyone and enjoy the rest of the summer. We will speak to you in three months. Hold on, I think we do just have a question that's popped up. So, we will take it quickly, if that's right, Heather. You got in just under the bell, <UNK>, so that was good. The price was, let's say, tangible book value. There were a lot of intangible and arguably somewhat valuable assets that we wrote-off in the process. So we think we got kind of a good pricing on the transaction. But effectively, our purchase price was reflected almost entirely with cash on the other side. So, there'll be no book value impact at all on this acquisition and although the purchase price was high in the $50 million range, almost all of that represents cash and a big proportion of that is surplus cash. Unfortunately, that's in a separate broker-dealer. So that cash is trapped. If you remember, we went through a similar situation at G. X. Clarke when we acquired that 18 months ago. So our idea would be to merge that into our big broker-dealer, and once we do that, we can address those kind of issues, so ---+ but no impact on book value. We have taken on a small loss, which we hope to (multiple speakers). Okay. So, I think actually this has come up on a couple of calls previously, where people have asked us, what would we like and what are we missing, and I think we've consistently said that, securities clearing sort of the last piece of the puzzle [weak]. We are probably the only midsize financial services company now that can clear every asset class. We're clearing FCM. We swap deal and we can clear you in any swaps. We do FX, we clear our own payments. Securities was the missing piece. So, something we've been looking at. It is a big lift to do this organically, and was something we were thinking about is, do we hire all the people that we need to do this. Do we buy the systems and do we organically grow it. And that wasn't a very enticing prospect for us, because it is a big lift and this is a long-term business. Little bit like the payments business in a sense that to move someone's clearing relationship over to you is a long, long process. So, that wasn't a very interesting option for us. I think at some point, we might have done it. So the last three or four years, we've been looking at opportunities in the marketplace. The reality is, in the midsize securities clearing space, there are handful of players and some of them have been trying to sell themselves. Some of them are held by private equity firms, some of them are just too small to be successful and want to sell, a whole variety of reasons. We've looked at some of those over the years, but just could never get to terms with price and what we were buying. And then the Sterne Agee deal came across, so again, not ---+ nothing is ever perfect when you are looking for acquisitions, but this was, given the price and what we're getting and our desire to fulfill this need, we thought that was a pretty good solve for that problem. So, we're really glad that finally we have this in. We think long-term that ---+ in the short term, I don't think this is going to change our results materially one way or the other, honestly. I mean, even if we ramp this business up significantly, it has such a long lead cycle that is going to take a while, before that actually makes an impact. So I just want to caution everyone, I don't think this is something that is going to have a material impact in the short-term. Longer term, though, I think this could be a very significant and valuable piece of real-estate that we've claimed in the industry. As I said, there's a handful of sort of midsize and smaller clearers, the industry has rapidly consolidated and our view is that the industry needs a credible midsize clearer, and we aim to be that. So, we would hope that we'd be sitting here in three years' to five years' time telling you we've achieved that objective and that this business is a material contributor to our bottom line. The other thing that's going to be harder to measure as we go forward is our view that having a multi-product capability drives business to you in other areas. We feel that we will win business, say, in futures clearing, because people know they ever needed someone to clear their securities, we can do that as well and vice versa. So, the fact that we do have the full menu, I think has a valuable sort of spin off effect on all the businesses, it's very hard to value that specifically. So, anyway, that's our thoughts and I don't know if I answered your question, <UNK>. Unfortunately, it's kind of a very curious process, driven largely by the regulators. At this point, we're not able to give you any insight, but this is a well-known business, I would say a franchise business for ICAP. I mean, it's been around for a long period of time, there are significant participants in that subset of the industry. They have a very good name in the market and they deal with very significant customers and are well known broadly in the energy space. So, this would be a nice add for us, it is a voice-broking business, which basically means that there is limited need for capital and system support in this business. So that's the plus, the offset is normally have compensation ratios. But we think it would be an interesting business, if we could do it on terms that are acceptable to us and we have agreed the terms with ICAP, but there are other considerations related to the mandate from the competitions authorities that we have to fulfill. So, we should know more about that or sort of definitively about that certainly within a month. And so look for ---+ as then when we can give you numbers and details, we'll do so. Thanks. Thanks very much. All right. I don't see any other questions up. So with that, thanks very much. As I said earlier, enjoy the summer and we'll speak to you in a couple months.

2016_INTL

2015

MON

MON #Sorry, on the second piece adoption rate on what. Sorry. Oh, okay. I think there is ---+ so two pieces in there. On the dicamba side, I believe you are referring to the chemistry over-the-top label, and we ---+ that is work in process and we are optimistic on that one. We put cotton in the marketplace this year because we had three herbicide tolerances there where the farmer could use two of them this year, and that is what we used to kind of set the tone on pricing. But we feel really good with our US approach on the over-the-top for dicamba. The other piece on Climate Pro, there's two things. And I think it's ---+ I'm still in the camp that says the most important thing is to develop the robust platform for data sciences for farmers. It's less about how much profitability we can get in the early years and how much pricing there is in the early years. It's about getting farmers established on a platform that helps them improve the decision-making both before planting, at planting, and throughout raising the crop. And that is going to continue to be our focus. Obviously farmers are demonstrating they see value in it and they are paying for those services this year, and we will continue to look at the value that we bring and price into that. But the primary focus in the next couple of years will be continuing to expand that platform. I think that platform play data becomes the glue that holds the chemistry, the seed, and the biotech together. We are uniquely positioned and it reminds me so much of the early days of skepticism in biotech and then skepticism on linking biotech and breeding. And even the skepticism when we changed platforms with 2s and with SmartStax. So we're going to have to demonstrate that. And I would expect that in demonstrating that we can bring these technologies together we get the opportunity one more time to license that to the rest of the chemical industry. It's more ---+ it's much more focused, and <UNK> mentioned ---+ went through some of this earlier, but it's much more on driving efficiency and the use in new technologies. In R&D this year we quietly retooled a big piece around breeding and we think that our breeding programs will be faster or yield more and cost less. So we actually use that as a surrogate as we look at other opportunities across the Company. But it's the application of data science in a number of fields that we think we can streamline and get better and faster. Thanks. Thank you very much and thanks. We have stayed a little bit long today so thanks for your patience and your support. I guess in summary I would say our business and our pipeline are stronger than they have ever been and yet ---+ and this is classic Monsanto, we continue to challenge ourselves to advance new solutions and provide an even more robust set of tools for farmers around the globe regardless of their size. So with the proposal that I started talking about today, our proposal to combine with Syngenta, we are looking beyond the short-term macro challenges that face agriculture to once again drive the next evolution. Many in the industry have theorized. There's been a lot of talk about integrated strategies, but I think, as I said earlier, there's a difference between talking and doing. And we believe we are best positioned ---+ we are a strong seed footprint and our leading digital ag platform ---+ to make this a reality, providing us with an opportunity to be an even stronger partner to growers. So we simply have the proven track record that demands consideration to be the partner of choice in leading this evolution. We appreciate the continued support of the respective owners in driving that dialogue and driving that engagement. I wanted to conclude by thanking you for joining us on the call today. Thanks very much.

2015_MON

2017

AXP

AXP #Well, thanks, <UNK>, and good afternoon, everyone Earlier today, we published our second quarter results and with our earnings per share for Q2 at a $1.47, and with adjusted revenue growth for 2Q of 8% We believe that our results continue to reflect solid progress against our priorities, laid out again on Slide 2, accelerating revenue growth, optimizing investments and resetting the cost base Since early 2015, we have made many changes to the company and have been investing in a broad set of growth opportunities generated by our unique business model As we have made these changes, we have always thought to balance the short, medium and long term We are certainly encouraged by our current revenue performance and the near term payoff we are getting from our actions But to be clear, we are making decisions and generating sustainable revenue growth and we've remained focused for the years beyond 2017 on the 6% revenue growth scenario that we shared at our Investor Day in March In addition, we are clearly seeing the benefits of our cost reduction efforts and continue to return significant amounts of capital to shareholders through our dividend and share buyback programs Our efforts across these areas are driving the simple model we have shared over the last couple of years We have a diverse range in growth businesses as a business model that provides steady operating leverage plus a balance sheet that shows tremendous capital strength all of which contribute to steady EPS growth Now, I know our numbers have been difficult to interpret over the past two years of repositioning the company, but Q2 does mark the end of the need for the quarterly adjustments we have sharing with your comparison purposes since the beginning of 2016. I know we are all looking forward to next quarter on that front Indeed more broadly, in many ways the end of the first half 2017 is a milestone for us as we complete the transition from repositioning the company and managing the related volatility to executing plans focused again on delivering steady revenue and earnings growth Of course the environment we operate in is challenging but we believe we are well positioned to compete effectively across our diverse customer segments and geographies With that let me turn to the detailed results starting with the summary financial performance on Slide 3. Revenue of $8.3 billion for the second quarter increased 1% versus the prior year, reflecting primarily higher year-over-year net interest income Excluding Costco-related revenues from the prior year and the impact of FX, adjusted revenue growth was 8% The second quarter also included growth in provision in rewards expense above the growth in loans and billings respectively as we would have expected, both of which I will come back to in a few minutes Net income of $1.3 billion was down 33% versus the second quarter of 2016 largely due to the $1.1 billion gain recorded last year upon the sale of the Costco cobrand portfolio Earnings per share of a $1.47 reflects our net income performance and also the benefits of our strong capital position Over the last four quarters, we have returned $3.2 billion of capital to shareholders through our share repurchase program, which is resulted in a 5% reduction in average shares These results brought our ROE for the 12 months ended in June to 22% This ROE performance is below our recent performance of approximately 25%, primarily due to the uneven quarterly earnings we experienced in 2016. If you simply look at the math of our expected earnings range for the full year 2017 and our equity position, our ROE should trend back towards our recent performance level as we progress through the year So let me move to our metrics starting with billed business performance trends, which you see several different views up on Slides 4 through 7. Worldwide FX adjusted billing grew 1% in the quarter versus the prior year As we move to Slide 5, you can see the Q2 billings growth adjusted for both the impact of Costco and changes in foreign exchange rates remained consistent with Q1 at 8% We are encouraged by the continued momentum in billing this quarter, which reflects broad based growth across our diverse segments and geographies, with adjusted U.S billings steady at 6% and international billings growing the low double-digits Turning to the segment perspective, in GCS, which grew at 5% year-over-year consistent with Q1, we continue to see healthy performance in the small business and middle market client segments, which I'll refer to as SMEs in my remarks Just to remind you, at our Investor Day, we defined SMEs as clients with less than $300 million in annual revenues Adjusted volumes from our SME client segment in the U.S grew in the low double-digits in the quarter And outside the U.S , SME client volume grew in the mid-teens In the large and global GCS client segment, volumes were up a bit as compared to last year though As we've said for a while now, we expect the large and global client segment to remain slower growth rates as corporations look to manage their travel and entertainment expenses In addition, we do not yet see any significant complexion point in macroeconomic trends that has caused a shift in spending patterns for these large and global customers In the international consumer and network services segment, the FX adjusted billings growth rate was 8% in line with the previous quarter Looking at the two parts of the segment, FX adjusted volume from proprietary cards grew at 12%, up from an 11% in Q1, reflecting continued strength in several international markets In GNS, the FX adjusted growth was 5% in Q2, down modestly versus the prior quarter, primarily due to China as well as Australia and the EU, which were impacted by changes related to regulation Moving to international in total on Slide 7, our billings growth rate is down slightly sequentially, but remained healthy with double digit growth in FX adjusted terms As we look our few key markets for example, we see continue double-digit FX adjusted growth in the UK up 15%, Mexico up 12%, and Japan up 17% While we have been showing strong growth across international, the regulatory environment in markets like Europe, Australia and China will continue to evolve and we will continue to adopt our business model as the regulatory environment unfolds Stepping back, we are pleased with the continued strength of our adjusted billings growth rate The momentum in the first half of the year reflects the investments we have made in a verity of growth opportunities over the last couple of years Although we face intense competition in the U.S and the regulatory environment in uncertain in many markets around the world, we've remained focused on driving more volume under our network, we feel good about the diversity of our billings growth Turning to our worldwide lending performance now on Slide 8. Our total loans were up 11% versus the prior year and are solid quarterly performance We continue to steady grow loans faster than the industry as we capture the particular opportunity we have to growth loans with existing customers while also adding new customers As we look forward, we believe we have a long runway for growth given our existing customer opportunities, while maintaining best in class credit performance Looking at the right hand side of the slide, you can see that net interest yield is again up significantly year-over-year The improvement in yield is driven by a number of factors, including a shift in mix to non-cobrand customers who are more likely to revolve, having fewer revolving loans at introductory rates, specific pricing actions taken in recent quarters and a benefit from increasing in benchmark interest rates without a similar increased in our overall funding cost As a quick reminder, our online deposit program personal savings is a little over $30 billion in size In our 10-K interest rates sensitivity analysis, we assume that as benchmark rates increase, our personal savings rate increases with a deposit data of 1. However, if you look over the last couple of years, the prime rates has increased by a 100 basis points, while our own personal savings rate has only increased by 25 basis point Now that change to our rate has come in just a last couple of months and we will continue to adjust our deposit funding rates to stay competitive in the deposit markets In general though, the personal savings program continues to be a very cost effective and attractive source for us Looking out to the balance of the year, if you consider the list I just went through, many of these drivers will persist, however the year-over-year change in the yield should not be as pronounced as we move through the coming quarters Before turning to provision expense, let me tough on our credit metrics on Slide 9. Again this quarter, delinquency and loss metrics in our portfolio were best in class In the worldwide loan portfolio, you can see that the delinquency rate was consistent with Q1 and up modestly versus the prior year Loss rates as we would have expected also continue to be modestly higher year-over-year Going forward, we continue to expect loss rates to increase gradually due to the seasoning of new accounts and a shift towards non-cobrand products, which have slightly higher loss rates but also generate greater yields As loss rates gradually move higher and loans continue to grow, the growth rate in provision will exceed the growth rate of loans, which is you can on Slide 10 was in fact the case for Q2 as provision increased by 26%, while loans grew by 11% Turning into our revenue performance on Slide 11. FX adjusted revenues were up 1% and revenue growth adjusted for both Costco and FX increased by 8% Clearly, we are pleased with another quarter of accelerating adjusted revenue growth And in particular with the broad based contribution to that growth from our diverse business segments If you take a step back, we have taken clear and different actions across those diverse segments to drive growth Let me take you back here for a second to Slide 12, which I first shared in our Investor Day in March On this slide, I talked about the growth opportunities we have across our different segments and I stressed that we have made specific changes in the way we operate to better seize these opportunities As I look at our results this quarter and in indeed over the last several quarters, I see progress against each of these growth opportunities as we realize the returns on the changes and investments we have been making Today, we have a consumer segment generating strong internationally and in the U.S where we have strengthened our product offerings in the premium sector And lending efforts that have broadened our card member relationships and successfully balanced growth, the strong credit quality and industry leading presence with SMEs who use our cards for an expanding portion of their payments needs, a larger merchant network that accommodates a greater share of our card member spending, a card acquisition engine that has successfully been redesigned for digital age and the more agile technology infrastructure that brings customized products and services market more quickly and efficiently All of these are driving our performance as we come back now to the components of revenue on Slide 13. First, discount revenue was flat year-over-year and grew by 7% on an adjusted basis The discount rate in Q2 was 2.44%, up 1 basis point for the prior year due to lower rate volumes coming off the network As we stated in Investor Day, once we move to the second half of 2017, you will see the discount rate trend shift back to down year-over-year due to the ongoing impact of merchant negotiations particularly in a regulated markets like Australia and Europe and the continued rollout of OptBlue Of course as always, the mix of our billings across industries and geographies will also impact the rate year-over-year as we go forward I know many of you also focused on the ratio of discount revenue to build business, which in addition to the reported discount rate also includes the impact of certain contra revenue items and also how we account for our GNS business In the quarter, this ratio was flat year-over-year at 1.79% as growth in corporate client incentives and co-brand partner payments and the shift in our billings mix towards GNS were offset by a year-over-year decline in cash rebate payments Net card fees grew by 8% in the quarter, driven by continued strength in the U.S Platinum and Delta portfolio as well as growth in Mexico and Japan Given the competitive environment especially in the U.S consumer segment, we view steady growth in card fees as indicative of our Card Members recognizing the breath and strength of the value propositions we offer on our products In addition, I would remind you that the increased Platinum fee for existing U.S Consumer Card Members does not start to contribute to card fee grow until September of this year Other fees and commissions grew 7% in the second quarter while other revenues declined by 19% The decline in other revenues was primarily driven by a contractual payment from a network services partner in the prior year second quarter and the sale of a small business in Q4 of last year Net interest income grew by 6% and on an adjusted basis grew by 24% as the higher net interest yield I described earlier and higher adjusted loan balances combined to drive significant growth in net interest income Turning now to expenses on Slide 14. Performance vary across the lines and I'll discuss the changes to marketing and promotion rewards in Card Member Services expenses when I come back to Card Member engagement spending in just a minute But first our operating expenses Total operating cost during the quarter were up 39% versus the prior year excluding from the prior year the $1.1 billion gain from the Costco co-brand portfolio sale, which was treated as a contra expense And a $232 million restructuring charge, adjusted operating expenses were down 4% And this marks the fourth consecutive quarter that adjusted operating expenses have declined year-over-year We continue to make solid progress on our cost reduction initiatives and we are confident that we will remove $1 billion from the Company's cost base on a run rate basis by the end of 2017. We are steadily executing on our plans to improve our efficiency and get costs out This progress along with our revenue performance today is allowing us to selectively reinvest some of those savings in areas that will help drive continued revenue growth going forward Our effective tax rate during the quarter was 31.2% compared to 33.2% in the same period last year, reflecting both discrete items and proportionally higher earnings from lower tax rate international market than in the prior year We now expect the full year tax rate to come in slightly below our previously stated range of 33% to 34% Moving to the summary of our Card Member engagement spending on Slide 15, total engagement spending in Q2 was $3.1 billion or 10% higher than the prior year in the quarter and up 7% year-to-date Looking at the components of that spending, in the first half of the year, M&P was up 1% versus 2016. As a reminder coming into 2017, we expected marketing and promotion to be down significantly from 2016 levels as we found efficiencies in our marketing spend and moved past some of the unique investment opportunities we had in 2016. And you will see that year-over-year reduction in the second half of this year I would also remind you that consistent with our historical practice, we will continue to evaluate investment opportunities and monitor our business performance and saving initiatives and balance our financial commitments with driving long term value As we look at the effectiveness of our marketing spend, we continue to see good traction in attracting new customers for the franchise In the quarter, we added 2.7 million new proprietary customers globally and in our global consumer business close to two thirds of new customer acquisition came through digital channels and 35% of new customers Rewards expense increased 9% in Q2 despite a small decline in proprietary billing volumes versus the prior year Excluding the Costco co-brand volumes in the prior year, adjusted rewards expense would have increased in the quarter by 20%, while adjusted proprietary billings grew by 6% This growth in rewards resulted in a ratio of rewards cost to proprietary billings of 86 basis points were roughly in line with the prior quarter The greater year-over-year increase in rewards expense during the quarter reflects the impact of the enhancements to our U.S Platinum products that we implemented at the beginning of Q4 2016, as well as continued strong growth and our Delta co-brand portfolio Cost and Card Member Services in the quarter increased 24%, reflecting higher engagement levels across our premium travel services including airport lounge access and co-brand benefits such as First Bag Free on Delta, as well as usage of the new Uber and benefit on Platinum We continue to believe that this is an area where we can offer differentiated benefits and we will continue to invest in Card Member Services To focus for just a moment on U.S Platinum, you already know we have made a series of changes to our U.S consumer and small business platinum product offerings over the last several months both in rewards and other more experiential benefit The yearly results from these changes look good and we are seeing both increased engagement from our existing U.S Platinum Card Members as well as higher rates of new customer acquisition since the introduction of the new benefits Turning now of Slide 16 in touching on capital We continue to use our strong balance sheet to return a significant amount of capital to shareholders Over the last four quarters, we have returned 94% of the capital we have generated I think this shows the commitment we have over time to leveraging our business model and capital position to steadily create shareholder value As you all know, we have recently received a notice of non-objection from the Federal Reserve on our 2017 adjusted CCAR submission We have both increased the dividend payout for the next four quarters as well as significantly increased the share buyback versus the prior CCAR authorization We remain confident in the strength of our business model and our ability to drive shareholder value through capital returns Of course, we also use capital to support business building activities such as growth in our loan balances and potential M&A activity in addition to returning capital through dividends and share buybacks Stepping back now in conclusion Over the past several years, we've embarked on a series of initiatives to reposition the company and drive sustainable and consistent revenue and earnings growth These efforts have been targeted at providing a mix of returns over the short, medium and longer term Looking forward we are encouraged with the trends that we've seen in our business metrics and revenue growth And believe that these initiatives are driving real momentum across our diverse business segments Even though revenue performance of the first two quarters, we now expect full year adjusted revenue growth to be above the top end of the 5% to 6% range I discussed in our Investor Day in March While this is clearly a positive development I would remind you that our recent revenue growth is benefiting from certain drivers that are likely to stabilize somewhat in future quarters such as growth in yield and increased customer engagement particularly on the platinum card In addition, as is our historical practice, we will continue to balance delivering earnings to the bottom line and investing for the moderate to long term I would also say that as moved the back half of 2017, the uneven year-over-year comparisons from the last few years have discontinued partnerships, large restructuring charges and portfolio sales will be behind us And results in the second half of this year should therefore provide a clearer picture for all of us of the progress we have made towards producing steady and consistent results Against the backdrop of all these moving pieces and given that we are at the midpoint of the year, we are confident that we will deliver full year earnings per share between $5.60 and $5.80. With that, let me turn it back over to <UNK> as we move to Q&A

2017_AXP

2015

ANSS

ANSS #Yes, with China right now, and we view this is being temporary, because we still view that as being a good long-term market, we saw a little bit of slowness in some of the state-owned enterprises. I think you saw that there is a lot of macro environment things going on with China and their stock market, some of the things that the state was doing in terms of that. That's really kind of the primary part of it. Oil and gas, pretty straightforward, but those are really the only ones that really stand out. We've talked for a couple of quarters about Germany. As Europe was coming up even with, as I mentioned, Eastern Europe and Russia being continuing to be pretty underwhelming right now is that Germany has always been a big bellwether for us and one of our top three markets perennially, and we had talked about some of those things in some of the things we put in place and that's probably one of the leading elements we had coming out. It's just, if you remember when oil and gas and copper and anything was driving mining and other commodity related industries, as a result of the slowdown in all of those sectors, obviously some of those our end customers; so they tend to either result in those businesses realigning themselves for the realities of the current economic situation and slowdowns. If you look at it, the most notable ones of the last few years, the mining in Australia, which was largely to support the Asia-Pacific, and if you look at also the mining and oil in South America, and Latin America was one of the areas where we saw probably the lowest performance. Even that being said, we wound up at the pretty high upper end of the revenue guidance. So it wasn't like it had a major impact, but we're always trying to note those various [pertabations] we see. Not that anyone signals a megatrend, but they tend to be a number of things that we are looking at just as we continue to project out the next couple of years. Well, I would say it's conservatism and I would say it is time lag, because anytime you get people involved, it is a big issue. Keep in mind, we did a very major thing and the management and absorption of that is important. Quite frankly, I don't know anybody who hits 100% on all the sales hires. We've got a really good percentage, but you've got some of that factoring in. And again, we're still hitting what we had projected at the beginning of the year for the year end and that's even taking into account that we're absorbing an increasing number of these ELAs. Like I mentioned, we're close to [$]0.5 billion now in deferred and backlog element, so the business is building along those lines. Now keep in mind, when you go to the named accounts, as somebody mentioned earlier, but I will reiterate, we had ---+ first of all, you find them, second of all, you train them, third of all, you have to then engage with the customer and we are getting that increased engagement. Somebody mentioned ---+ alluded to the VP kind of access, and that is on a market uptick, but it isn't like the very first time that you meet the VP, they write you a check. We're talking about planning out, if you will, to 2 through 10-year type of adoption patterns. So there's that natural ---+ but that natural latency was built into the very guidance that we gave at the beginning of the year, and if you will, we're maintaining it even against some of the additional headwinds and also the benefits of the longer term nature of the enterprise license agreements. And even though we are only on the very beginning of the ANSYS enterprise cloud usage, we've gotten a lot of interest there. Now that will be time before people change overall usage patterns also. But those are all your fairly positive things, but I think they're also fairly much in line with the guidance that we've been giving for the last few quarters. How are you doing. I'm going to have to try to process the closure rate. The pipelines are markedly, markedly up. I would say in general you look at the manufacturing index and things like that, those are some bellwether, but I think what you have to look ---+ what we've always gauged more towards is the R&D and, if you will, the innovation measures because essentially that's where our software's used, not primarily on the manufacturing and inventory side of things. So as a result, we've seen a range of companies continuing to try to drive new intervention into their products, first and foremost. Second of all is they're starting to figure out what, for instance, the industrial internet or Internet of Things might mean in terms of how they evolve or retrofit their products to fit in with that kind of environment. We've talked about the overall electrification of traditional industries, automotive being one of the more notable ones, but being able to go into that one. So with those type of things, we still see a lot of innovation. In keeping with our global presence, we do see a fairly broad-based globalization, but amidst there, there are increasing amounts of fits and starts that continue around the globe as everybody seems to be recalculating things. But at the end of the day, we don't really see an end of interest in new innovative products or basically flat lining on the new design level. Well, it can create incremental revenue because essentially if somebody is on a lease basis, they basically get enhancements to the products that they have leased, but they'll get those generally across the portfolio. Now, some of that starts to enter a little bit more as we discussed with the enterprise license agreements, where there is an increased flexibility that helps people predict, over a multi-year period, usage patterns that they might not be able to predict but allows them to flexibly meet that, which gives them the confidence to kind of, I would say, move forward instead of doing an exhaustive study to determine exactly what they need and when. So we will have some of that. But in answer to that, is that what we've usually said is that it tends to bend the curve up. Maybe that's a bad expression these days, but it bends the curve, it does not dislocate the curve, traditionally. But we do see that increased usage from the capability. But that's ---+ keep in mind, we've had a normal cadence for the last decade of almost every six months having a fairly significant feature release, and it's continued to be one of those things that has helped propel us to this point, and we think is essential for going ---+ keeping that progress going over the next couple of years. I think also ---+ the other thing I would mention, of course, is that as a testament to that, you also look at the historical renewal rates, which continue to be historically strong, and that's one of those things, it's really that vote of confidence in getting continued access to those capabilities, I think, that keeps those strong on both the lease and the service side of things. Thank you. Well, the one thing I want to mention is sometimes ELAs are really covered under ---+ I mean, you can kind of draw a proxy by the, by those seven figure deals that we talk about, because ELAs are always in the healthy side of that, but I will tell you that sometimes the kind of agreements that we have here, where we're not even allowed to really mention some of those. So I will tell you the one that we were able to kind of put through there and you will see you will be able to get at least a windage and elevation on that from that. The other thing is that ---+ the other thing is tendency. ELAs, they tend to more often happen beginning and end of years as people are synchronizing on their various calendars and budget cycles. Above. By the way, when I say above, I won't say 2X above, but it's significantly above. I'm sorry, I'm just trying to give you little bit more color on that. Hang on a minute. Yes, plus $2.5. Yes. <UNK>, on, I think it was the last call, someone asked about are we going to trend our model kind of in line with what other people in the industry are doing relative to moving to everything subscription, and I commented that historically, we have tended to have models that are flexible and meet the needs of many of our customers. So if you looked at the commentary around geography, if you look at the performance of Asia-Pac for example, Asia-Pac, places like India, China, Korea, when they are growing very fast, they are really perpetual license buyers. They are not subscription license buyers predominantly, particularly in those major accounts and we have in those geographies. So the reality is, while in some geographies ELAs and subscription is becoming more of an acceptable norm, in other parts of the world they are still perpetual buyers and we're going to continue to offer them perpetual licenses. $30 million. Okay. Actuary like to thank you all for your participation in our call today and for your ongoing support and coverage of ANSYS. We are proud of what we've accomplished in the first half of 2015, but as we've discussed on the Q&A session here, we have got a lot of work ahead of us to deliver on our goals for the full year. So with that, in addition to thanking you, I would like to thank the entire ANSYS team for their commitment to driving the results that we've had and that we are moving toward. I would also like to welcome the Gear team to the ANSYS family. In short, we feel that we are very well positioned to continue to drive the growth. I'd probably cite two very significant reasons. First, we have increased visibility from some of the larger multi-year enterprise opportunities that are in the pipeline for the back half of the year, and also the general growth of the pipeline that we have alluded to on this Q&A. Secondly, we've been successful in the more aggressive approach to sales hiring that we referenced on the last couple of calls, and of course, we've discussed that here. In short, we have unparalleled product offerings. We've got a great long-lived record with our customers, extremely high recurring revenues and the opportunity to augment our growth through new features and the kind of the exciting technologies from acquisitions, as well as our own internal R&D innovations. So continued sights in the near term, we are growing our direct sales force, we have a renewed focus on our indirect channel. I think you saw some of those results in Germany, where we have a very hybrid model, and we are committed to driving solid financial results to generate continued value for our shareholders. So with that, I will sign off. Thank you very much and talk to you again next quarter.

2015_ANSS

2016

PJC

PJC #Thank you. Thank you very much for joining us, and we look forward to updating you in April.

2016_PJC

2016

DRH

DRH #<UNK>, this is <UNK>. Let me take both of those, in turn. On the dispositions, and thinking about the confidentiality agreements we have, it's probably difficult to disclose what the net proceeds are, but if you look back into what hotels they are by figuring out what that is. On your broader question about share repurchases, it's a great question. I would note a couple of things. One is the two dispositions that we mentioned are still pending. We don't have that cash yet to deploy. The other thing I'd point out on valuation is that just two months ago, which was during a blackout period for share repurchases, the stock was 20% lower. I think we're being patient in trying to be opportunistic about any share repurchase. And although we do think the stock is trading at a big discount to NAV, as we mentioned, probably 25% to 30%, in our estimation, we're being cautious as we watch some of our peers hit that buyback button way too early over the last six months. So, we'll continue to monitor the markets and try to make the right calls on when we deploy the capital. Yes, <UNK>. We have that option within our plan. It's called a 10b5-1 plan where you can set a set price, if you think it's so compelling that you would buy back stock, and then that can be traded during all periods of the year. <UNK>, this is <UNK>. That's a great question. Group looks like it's been lagging for this recovery. So, it's been a late comer to the party. I think there was a loft pent-up demand for groups that needed to meet, finally got the momentum, and now we're seeing those groups actualize. And we're seeing a lot of new groups that haven't met in a while come into our hotels. So, I think there's a little bit of a pent-up demand element to the group trends and what's going on there. On the business transient, as I was mentioning earlier, I think a lot of that's just more realtime in how corporate America is doing. And if you look at profitability of corporate America and if you look at the correlation to GDP, it's been a little anemic over the last couple of quarters. So, if there's improve, we would expect the business transient more quickly to react to that improvement, [or change] either way. <UNK>, from a mix perspective about 29% of our first-quarter rooms revenue was business transient, about 29% was group, and the balance was leisure contract and other. From a sequencing perspective business transient was down relative to where it was first quarter last year about 1%, group was down about 2%, and leisure contract and other went up 3%. That's a function of what we talked about in our prepared remarks, which is the leisure contract and other businesses performed strongest during the quarter at the expense of both group, which was down 7.9%, and business transient which was down 1.4%. With respect to where the demand is coming from I'll turn it over to <UNK>. Steve, this is <UNK>. I would just add two comments to that. One is, we have a portfolio of only 29 hotels. We do have an allocation to business transient that seasonality plays a big role. So, think about New York, Chicago, even Boston in the first quarter, it's not necessarily indicative of what's going on for the full year in business transient. So, we don't want to read through too much to the general industry. The other is, what we have witnessed is actually our special corporate accounts have increased, but at a number of the special corporates, just their production is down. So, while [PIVC] may still be coming, or we may have added [MacKenzie], just the level of activity that they're producing has been shy of our expectations. So, they're coming, sometimes they're paying the rate, but the production of some of our best customers is just down. I think especially based on Q1, and based on the segmentation we get from our operators, it'd be hard to give you precise numbers on that kind of segmentation by type of special corporate account, if you will. It's <UNK>. I'll start on Key West and then turn it over on the specific hotels for <UNK> to comment. Key West market, it's a great market because you have the moratorium there on new supply. But what we've seen is there is some volatility because people have taken ---+ because it's such a good market people have taken a bunch of older products, taken them out, and then they re-introduce them, which creates some volatility and pseudo-supply, if you will. Right now we're experiencing that. There was a four-pack of hotels that Highgate had purchased that were taken offline, completely renovated, and now coming back online. So, I think there's some absorption there. We think that will happen over the next couple quarters and then we'll get back to the regular trend line. We do own two hotels that had some particular things going on so I'll let <UNK> expand on that. It's <UNK>. I would add real quick, both those hotels, the fact that the new supply was coming back was all factored into our underwriting. Both of those hotels are actually trending about 10% ahead of our underwriting on the bottom line. So, it is just a matter of how we thought through the market. This was factored into our underwriting. Yes, I'll answer that. Actually, it exceeded our expectations for the quarter. If you look at the bottom line, the margin growth there, the property really did a terrific job. There were some issues in the way we layered in the group last year that created some comp issues this year, but overall we're actually pleased with how the first quarter played out at Frenchman's Reef. And actually at the second quarter I think it's starting off on a relatively strong foot. As far as a core holding, will we own this hotel in five years. I would say it's less likely than more likely given the volatility and the seasonality of the kind of asset of a fly-to-only market. It just has some inherent issues when you're trying to get consistent earnings. It could be up baked or it could be down baked depending on the weather, which isn't necessarily ideal for a public company. The market, as we've seen in the Caribbean, it goes hot and cold very quickly. One, we've been waiting to maximize profitability. And you've seen revenues and EBITDA grow pretty substantially in the last three years at this hotel. So, we've been waiting a little bit to get that EBITDA back up to where we think it should be. And then we're going to come out of the markets. We regularly talk to the brokers that are experts in the Caribbean market. Based on those conversations as recently as two months ago, it doesn't feel like the ideal time to monetize that asset. We certainly don't want to sell it below what we think it's worth. So, we're going to continue to watch it. If there's a good opportunity to monetize the asset in the Caribbean, and we think we can get decent pricing for it, we're going to do that. I think the reason you haven't seen us be more proactive on that front the last couple years was really because we saw the upside in both the revenue and the EBITDA there, and we wanted to get there. But we're now at that point and we'll just continue to watch the market. Thank you, Crystal. To everyone on this call, we appreciate your continued interest in DiamondRock and look forward to updating you with our next-quarter results.

2016_DRH

2015

LYV

LYV #Thank you. Live Nation has continued growing in the second quarter and for the first half, with revenue up 12% and AOI up 6% on a constant currency basis in second quarter. The increase in revenue was led by our Concerts business, as we continue attracting more fans to more shows globally, which in turn, drives AOI growth in our advertising and ticketing businesses for the first half of the year. With the majority of our tickets sold for the year, we are confident that we remain on track to deliver our 2015 plan, and all key leading indicators reinforce our expectations of continued top- and bottom-line growth, as we build global market share in our core concerts, advertising and ticketing businesses. We have built the industry's most scalable and unparalleled live platforms, putting 450 million fans in 40 countries, to that magical two-hour event each year. Concerts are the flywheel for our high-margin on-site advertising and ticketing businesses and this year, we expect to deliver record operating results, increasing revenue and profitability for each of these businesses. Starting with the Concerts business, we have now sold approximately 75% of our projected tickets for the year and through July, we are pacing 7% ahead of last year's ticket sales. This is our top leading indicator that we will increase concert attendance again this year. We continue to be the world's leading promoter for about three-quarters of the top 25 tours, including U2, Imagine Dragons, Luke Bryant, Kid Rock and One Direction. The strength of our global platform continues to deliver growth, as we have increased year-on-year attendance. In the second quarter, over 1 million more fans attended our shows. For the full year, we expect to grow our fan base by over 2 million fans, which on its own would be one of the top five promoters in the world. Along with attendance growth, we have also grown per-fan on-site revenue this year about 18%, over $20 per fan, in our amphitheaters and festivals, as our new sales initiatives, particularly those focused on high-end fans, is paying off. At the same time, we continue building our global platform for the future, most recently adding Marek Lieberberg to establish our Concerts business in Germany. Germany is one of the top three concert markets in the world, and Marek has a history of promoting more than 700 shows with over 2 million fans each year. Adding these shows to Live Nation can make us the top promoter in Germany. And moving those 2 million tickets in the Ticketmaster platform in Germany will substantially increase our scale and market position and ticketing in Germany. With this move, Live Nation now has a promoting presence in all major Western European markets. Along with our presence now in nine Asian markets, we're the only promoter able to provide global and regional touring support at scale for artists. Our artists managers continue to provide a strong pipeline of shows to our concerts and sponsorship division. The sponsorship and advertising business, we have delivered strong growth through the first half, with both revenue and AOI up over 20% on a constant currency basis. Our key leading indicator for advertising, contracted net revenue, is up 19% on a constant currency basis as of the end of the second quarter. And we have sold 80% of our planned sponsorship for the year. This now gives us confidence that our AOI growth rate in sponsorship and advertising for the year will be in the low-teens, an acceleration from recent years. Our online advertising continues to build rapidly, growing revenue by 36% and AOI by almost 30% at constant currency for the first half. We now have over 65 million monthly visitors to our sites and broader networks, making Live Nation one of the top three online music networks. On the content side, we have entered the second year of streaming live shows with Yahoo! Live, with an increased focus on festivals this year, including EDC in Vegas, Wireless and Creamfields in the UK, and Voodoo in New Orleans. Our Live Nation TV channel with Vice Media is launching this month in beta, and will provide live music fans and advertisers a channel dedicated to live music content, delivered by Vice's unique storytelling ability. With the growth of our festival businesses, we are also continuing to build our base of major advertisers, increasing the number of companies that pay us over $1 million a year by 15%, now delivering a collective $200 million to Live Nation in 2015. With all parts of our advertising business now performing and growing rapidly, we expect a record level of AOI growth in 2015 with continued strong runway. Ticketmaster has continued building its global leadership as a ticketing marketplace this year, with 7% growth in traffic, leading to a 10% increase in primary and secondary GTV. A key driver behind this growth in site visits and GTV has been our mobile first strategy, building our products for ease-of-use and viewing on mobile devices. Mobile now consistently accounts for more than half of our traffic, both in North America and internationally and year-to-date, we have deployed 27 updates to our apps globally, as we are enhancing the fan experience. As a result, we continue seeing growth in mobile ticket sales, up 21% through the first half and now accounting for 21% of all tickets sales. Our app install base continues to build as well, now at 19 million, as more fans are seeing a benefit from improved search and ticket management functionality. I am confident that 2015 will mark the true point of conversion of Ticketmaster to a technology company. We have the right leadership and technology teams in place, building a marketplace and delivering products with great fan features, while also capturing cost savings for the business. With all this, Ticketmaster has never been better positioned. After growing the business in the first half of the year, we expect 2015 to be another year of growth and record results for the Company, and we are confident that we will deliver the final year of our three-year plan. Based on the strong position of our leading indicators and concerts, and advertising and ticketing, operationally, we expect revenue and AOI growth in each of these businesses and overall for Live Nation this year. And more fundamentally, we continue to see a wide berth for both organic and acquisition opportunities to further grow each of these businesses beyond 2015, directly building on the success we have achieved to date. With that, I will turn it over to <UNK> <UNK>, our COO, for more details. Thanks, <UNK>. I will start with our results for the second quarter. Revenue at constant currency is $1.9 billion, up 12% from the same period in 2014. Reported revenue was $1.8 billion. AOI is $151 million at constant currency, up 6% over last year. Reported AOI is $142 million. And free cash flow is $91 million, up 10% compared to last year. At the end of June, our concerts-related deferred revenue, which is the monies we have received to date on tickets sold for events in the future at our owned or operated venues, was $1 billion, an increase of 20% over the balance in June of last year of $858 million. Revenue growth for the quarter over last year was driven by higher concerts revenue from increased arena activity in North America and higher festival activity. Reported AOI for the second quarter was in line with last year at $142 million. Total FX impact to AOI for the second quarter was $9 million. Our sponsorship and advertising segment AOI was up 23% at constant currency, with higher online advertising activity and festival sponsorships. Ticketing AOI was slightly down, with the shift in timing of ticket sales to the first quarter. Concerts AOI was flat to last year, and Artist Nation's AOI was lower, as we invested in new service lines. Our operating income for the quarter was $42 million compared with $56 million last year due to higher amortization, primarily related to acquisitions. Net income this quarter was $15 million versus $23 million in 2014, driven by the lower operating income. Free cash flow in the second quarter is $91 million versus $83 million in 2014, driven by timing of interest and tax payments, as well as lower distributions to noncontrolling interest partners. Turning to the results for the first half of the year, revenue at constant currency is up 9% from last year to $3 billion. Reported revenue is $2.9 billion, up 3%. AOI is $225 million at constant currency, in line with last year, and reported AOI is $211 million. And free cash flow is $115 million. Revenue for the first six months was driven by growth in Concerts, which delivered over half of the overall increase, up from higher North American arena activity and increased festival activity globally. All of our business segments had higher revenue over last year in the first six months. AOI for the six months was $211 million, as reported. Total FX impact to AOI for the first half was $14 million. Sponsorship and advertising AOI grew 23% at constant currency, with higher online advertising and festival sponsorship. Ticketing AOI was up 7% at constant currency from higher resale ticket sales and increased primary ticket volume, primarily from Concerts. Concerts AOI was impacted by the timing of the mix of shows year-to-date. As <UNK> noted, we expect higher activity for Concerts in the back half of this year, as indicated by the 20% increase in deferred revenue. Lastly, Artist Nation's AOI was lower with the investments we are making in additional service lines. Operating income was $18 million for the six months compared to $43 million last year, due to lower AOI along with higher amortization related to acquisitions. Our net loss in the first six months was $43 million, which was impacted by a $20 million non-cash adjustment to certain working capital accounts due to changes in foreign exchange rates. Our normalized net loss excluding that was $23 million compared to a loss of $10 million last year. Free cash flow for the six months is $115 million, in line with last year. Our cash flow from operations was $357 million for the first six months and was up year-over-year, largely because of the increase in deferred revenue. As of June 30, we had cash of $1.5 billion, including $618 million in Ticketing client cash and $707 million in net concert event-related cash, with a free cash balance of $201 million. Our total capital expenditures year-to-date were $64 million, with about a 50% split between maintenance and revenue-generating CapEx. For the full year, we expected our total capital expenditures will be in line with our previous guidance at around 2% of revenue. As of June 30, our total debt, including capital leases, was $2 billion, and our weighted average cost of debt is 4.3%. Our debt covenant currently requires a maximum leverage ratio of five times and we are comfortably in compliance at below four times as of June. We continue to expect that we will deliver on our three-year plan for 2015, with growth in both revenue and AOI on a constant currency basis, while we continue to invest in our long-term growth strategy. In summary, and all based on constant currency, overall, we currently expect AOI for the third quarter to be largely in line with last year, along with a strong fourth-quarter across our businesses. We continue to expect double-digit growth in Concerts AOI for the year, with increased show activity in the back half of the year, particularly in the fourth quarter. We expect growth in sponsorship and advertising AOI to be in the low-teens, with the majority of the second-half growth driven by a strong fourth quarter. With the projected strength of both primary and resale ticket sales, especially in the fourth quarter, we expect that Ticketing will deliver high single-digit AOI growth for the year. And for Artist Nation, we expect AOI for the last half of the year to be more in line with the second half of last year, also more heavily weighted towards the fourth quarter. Thank you for joining us today. And we will now open the call for questions. Operator. And let's just note, on MLK, in Germany to date, we basically have Ticketmaster Germany. But because we ---+ it's an allocated market, don't have a lot of activity. And generally, in Germany overall, Live Nation Ticketmaster is about a negative to a zero business. Adding now this acquisition, which will be accretive day one, because of the low-cost we were able to attract Marek to come into the network, we get to start that machine now where we've already got a fixed cost base of TM Germany in place, we get to now allocate tickets to our own platform. Historically, when we brought in Madonna and a U2 into Germany, we sold those off to Marek or someone else. Now we get to self-promote. And then, once you start self-promoting with tickets, you start to expand your sponsorship base. So we are very, very proud about this deal. We've been working on it a long time. And Andre, his son, and Marek, provide us an instant base business in Germany to build our TM plus ---+ TM business as well as our sponsorship in Concerts, and grow it from day one. I would say that just ---+ <UNK>, to add one thing to <UNK>'s comment. Our output deal for T For Fun as well as CIE in Mexico have ended this year. So historically, much like the Marek Lieberberg conversation, we sold off our U2 shows and et cetera to either CIE in Mexico and T for Fun in Brazil. We have not renewed either of those deals nor plan on renewing those. We plan on taking our content and establishing a presence in those markets so, again, we can start building our ticket sponsorship and overall business off our content. So whether we do that through an acquisition or a start-up, we are exploring all those options. But getting kind of from Canada going down to Mexico into South America, it's obviously a natural routing for the 50-plus tours we buy. So, important markets for us to finish the play on, given we are sending lots of content south. And on Ticketmaster, <UNK>, we think we just have a ton of runway there. We have a top five global commerce site, has not historically been anywhere near best-in-class in terms of converting all of that traffic. So a lot of the hires you will see ---+ they are always going to be centered around our two core missions, a better product and conversion. So whether it's the ---+ one of our new hires from Virgin Airways who is going to focus around our loyalty and converting that base, or some of the great product people we've hired who are going to continually deliver a more seamless product on our mobile app and our mobile business. So the tangible benefit is, I think, what you are seeing on a quarterly basis ---+ traffic up, conversion up, GTV up. To get all those up, we know that we have got to deliver a better product, ongoing, with a robust roadmap. I think we mentioned today that we had 27 updates to our mobile app. So we're very serious about having a best-in-class mobile experience from the minute you find out about that show to the digital ecosystem throughout. And we've got to make sure that our conversion gets better and better as that massive traffic is coming to our door through mobile or on desktop. We want to make sure we know more about you. And we've talked a lot about our sales force and our CRM strategy, really mining that data of all those customers that have either come before or are new to our site, offering them a better experience and ultimately converting them and ---+ over time. So a lot of the hires or anything you see we do is all geared towards either better product and ultimately higher conversion against a very high traffic base that we currently have, and the tangible benefits you will see on continual GTV and traffic usage. And then, <UNK>, on the free cash question, it's driven by acquisitions at about $60 million, and then the other big driver of that is just continued advances for both artists and taking clients as we continue to grow the future of the business. Yes, we will continue to renew that on an annual basis. And as you can see, this year, we were able to expand our continent offering by increasing our festival presence. And I think by this point now, we have attracted kind of a good audience and a proof of concept that would let you know that there are many other advertisers or streaming platforms that are interested and excited about the opportunity. So we will remain with Yahoo as long as the economics work for both of us. And we think this is a viable business going forward. All right, I'll try to step back. So let's get back to the strategy. As we have outlined, we are ---+ our first job over the last couple years was to kind of consolidate and build our global platform from a ---+ on a digital basis. So now, with over 65 million uniques on a digital basis, we have a wide platform. Obviously, like anyone else in digital advertising, the advertisers are looking for more and more sticky content that we could create to satisfy their needs. Yahoo! was our first kind of toe in the water to validate that we could deliver that, and now Vice will be that next evolution where we'll watch a start-up channel. We will have lots of content, original programming, all based around the live music business. And we think it's absolutely all incremental new advertising to our platform. It will be a new channel. We will have multiple distribution points. And as we kind of get the combination of the content right with the distribution right, we just think it's all incremental eyeballs and advertising to our current base business. <UNK>, does that give you a good basis. Well, we hope to ---+ because we assumed like the Yahoo! model, the investment ultimately gets recouped within that same year by the advertisers. So Yahoo! wasn't a ---+ was a multimillion dollar investment to stage all those shows annually. And we have been able with Yahoo! to deliver a profit against that business. We look at Vice in a similar fashion, as a startup cost to create some new content. But we believe that through kind of distribution, once we get rolling over the next six months and the eyeballs are delivered, that we will be netting ourselves incremental AOI advertising in digital next year from this.

2015_LYV

2016

LSTR

LSTR #<UNK>, this is Pat. No, there were not any major customer wins in the quarter that moved the needle. Certainly, we are out winning business, but I think it bears repeating from <UNK>'s opening remarks. It's the model and it's the model executing. If you think about that market penetration that we have with our $1 million agents, that's 500 plus salespeople out in market that are calling on customers face to face, fundamentally different than a call center environment. I think what you are seeing is customers are more welcoming to sales calls. I think there's concerns about where does capacity line up in 2017. And so I think we have been in the right place at the right time and executing around the diversification of the model. I was looking for my notes there. We ---+ yes, Q2, the spend was $2 million, and that compares to about $0.5 million last year in Q3. From a comparative stance, about $0.5 million last year, almost $2 million this year. We are going to kind of continue on this pace and maybe increase this pace through 2017. I think what we said for this year, for 2016, we expect it to be within a range of $0.5 to $0.10 impact on EPS. Year to date, I think we are at $0.7 and I expect we will probably be at that higher end, $0.10, when we get through the year. Next year, we have not finalized next year yet, but some of the preliminary numbers I'm looking at. Hopefully we are at launch and we're doing a lot of training, and stuff like that and there's some cost in there. We are looking ---+ we probably will be higher than that $0.10, but I don't want to commit to a number right now until we finalize what we are looking at for next year's plan. I don't believe any of it is hurricane related. The most I heard is we hauled 25 loads or something. I don't think that is going to be anything significant in the quarter. I don't think that's the sequential volume trend. I think we saw those trends ---+ even before the hurricane hit, we were looking at trends that looked better than the seasonal pattern from September to October. Again, when I touch on the better seasonal pattern, it's hard to put your hands around it because it's slightly better. We are not talking about a huge breakout where things are getting better. It's just a nice sign to see because we hadn't had that for awhile. Again, it's broad based. It's hard to say where it's coming from. Again, it's good. We saw the flatbed volumes increase over the prior year based on ---+ taking out those automotive loads from last year and the 6% growth in van volumes that we got through the third quarter. And that just continued through October, or at least for the first three weeks of October. It's hard to put our hands on what's driving it. I think we have a lot of demand on our drop-and-hook operations on our trailers. You can see ---+ (technical difficulty) third quarter. And I think we agreed it was 6% in the second quarter. So we are seeing acceleration of growth on our van equipment, so it's a combination of everything. I think there's good execution. Pat has done a good job of bringing new agents in. I think we are over $110 million in new agent revenue for the first nine months of the year, and our target is usually $100 million and so we're beating that. I think the combination of everything that's going on, whether it's our drop-and-hook operations, a little bit better flatbed environment for us, it feels a little better. It's still flat to last year, but that's good. Then the execution on some of the new agents coming onboard. The tax rate we are modeling the 38.2%. That's our effective rate we have had over the years. As far as the share repurchases, we are going to do what we normally do. We are going to watch the share price and let history be your guide there. We modeled about 1 million shares. Year to date, we are at 773,000 I do believe, or $50 million, so I would expect something similar to that run rate. 2017 probably the same number of shares. And we are probably going to budget for 1 million shares. <UNK>, this is Pat. No, there is not a lot of optimism in that segment of the business. Morning. Yes, <UNK>, this is <UNK>. About 67% of our BCO fleet is ELD compliant as we speak. So we don't really anticipate much, if any, impact as we continue to roll out ELDs prior to the mandate with the BCO fleet next year. Well, if the number ---+ if the amount of revenue leans more towards brokerage because there's fewer BCOs, is that your question, <UNK>. I think the best way, <UNK>, for you to ---+ take a look at the last five years of the percentage of contribution from BCO and the percentage of contribution from brokerage, and you can see the trend of what happens to our gross margin there and then you could probably model it to show ---+ bring BCO down and you should be able to model what your gross profit is. We don't specifically get into the margins on BCO or brokerage. We kind of talk about it as a whole and we don't really discuss our margins on brokerage or BCO. I think if you take a look at the historical trends, you can make some assumptions. You can probably get pretty close to what that margin is going to do if you reduce or increase BCO as a percent of the total. I would like to say, yes. At this point I am being told, yes. But it's slow rollout. In our business model, we are dealing with over 1,100 independent business owners being our agents. We can't just say here it is, use it. It's almost where you're rolling out ---+ at the very beginning, we're rolling out with very few agents and then we accelerate the growth rate. It's going to be a rollout that takes more than a year. We are thinking two years by the time ---+ two to three years we get every agent on it as we slowly roll it out. In March at our agent convention, we had an agent stand up and he described basically his business process. It is the one agent that's utilizing the system today, but he's basically using it with one customer. Where he was doing a lot of manual type interactions between his carriers and the customer, the system we put in place now is a lot of automated, a lot of EDI, a lot of electronic communications, and our goal really is to provide to make sure that the agents have tools that they can generate say let's say $2 million of revenue. At that point, they have to add an employee, and we'd like it push that to $3 million. Our goal is to build efficiencies out there and one of his comments was that before we rolled out this tool, he was probably about $1 million ---+ for every $1 million he had that drop in an employee, and now he looks like it's more of a $5 million per employee. Now there's ---+ you got to consider his business was very manual and went very automated. We are not going to see that kind of outcome with every agent, but he's our only example. We would like to see an agent be able to do anywhere maybe $3 million of freight with a single employee. That's kind of our goal and our target, and we'll see out that rolls out as we start rolling it out to the agent base. There's more automation to it, a little bit more simplification to the process. That's what we are shooting for. <UNK>, this is <UNK>. It really hasn't to date. I mean, the interest from owner/operators looking to come to Landstar is at a very high level, and we continue to again, pretty flattish, from a growth rate standpoint, but the interest is very high. We are not seeing any particular signs of increased competition that we can't meet. We think we are really the home of owner/operators, and being a completely owner/operator non-asset based fleet, I think has its advantages in many of the programs and the way we distribute freight and all those kinds of things I think went out at the end of the day against most of the asset-based models who were trying to be both. Good morning. I think if you look quarter over quarter, we did have a slight increase in our PT rate. The brokerage buy rate was up about 48 basis points. [Good point, <UNK>]. Yes, yes, yes. <UNK>, this is Pat. Again, the customer base that we are attracting is broad based, and if you just think about the business model and the natural diversification that the agent model kind of brings to the table, it's not surprising that it's very broad based. As it relates to contractual versus spot pricing, clearly in some of these accounts there is contracted pricing. We feel very comfortable with the pricing that we have in those situations, but in some of it, it's also spot business. So again, it's broad based. It's multiple accounts. It's many industries, and it's just a reflection of the Landstar business model. That is correct. Hey, <UNK>. This is <UNK>. In the third quarter, the year-over-year decrease was about $2.5 million. It should be about $1.5 million in the fourth quarter. Thank you, Danica. I look forward to speaking with you again on our 2016 year end earnings conference call currently scheduled for February 2, 2017. Have a nice day.

2016_LSTR

2015

VFC

VFC #Good morning, <UNK>. This is <UNK>, I will start that. Our demand creation is growing a little bit faster than our top line. So just in terms of modeling it out, we continue to make those investments but importantly we are also improving the effectiveness of those investments. We are making those dollars work better. I will give you one simple example, we have had 14 global media agencies and we have embarked on a project to really look at rationalizing that, getting more leverage, the power of one VF. And as a result, we have taken that 14 down to 3 and that is resulting in tens of millions of dollars of savings over several years and that is really a way to just put those dollars to work in a more effective way. From a midtier standpoint, <UNK>, I think there are two things I would like to talk about. One is we brought Wrangler to the midtier and it has been extremely successful. What I mentioned earlier is our consumer is asking for our product in different channels and that just tells us the strength of the brand that we have and we brought that product to that channel. It has resonated extremely well and we are rolling it out across the channel across the United States with great success. On the female side, we are bringing real innovation to the channel. So not just around denim. I think the thing that is really interesting and really exciting for the Lee brand is we are bringing some different fabrications and some different performance type products that have been really successful from the female standpoint and the consumer has really liked that in that channel too. So that is a little bit on the male and a little bit on the female within the channel but we feel really good about what is happening in the second half and what we have in our innovation pipeline going forward. <UNK>, it is <UNK> again. It is absolutely fair to say that ---+ how to do this because I will talk about a specific midtier retailer. But is the midtier sector healthier than it was two years ago. You bet it is. Is it healthier than it was last year. Yes, it is. Where is that going to go. I don't know but those retailers in that space have been working really hard to become relevant and to get momentum and they are getting some traction. Thanks, <UNK>. As we have discussed in the past, the answer is all of the above are true, all of those are levers and I always just ---+ when we have this discussion I always encourage people don't isolate too much on one single component of our input cost because the reality is the markets are pretty efficient, we see commodities now trending down, we see currency going the other way. It is really hard to predict how all of those factors are going to come together. But that is why we have hedging programs and that is why we enter into longer-term relationships and contracts so that we can see those coming and design and merchandise around those known input costs. Pricing is absolutely a lever, I made the point earlier in the call that it is not necessarily like for like items although that will be part of the equation but really I would say merchandising and the mix and the innovation that we are bringing to market that we get paid for, all those things together mix to allow us to maintain our margins. The other thing I always say too is that while the speed with which currency change this time is a little unprecedented, the fact that it is changing and the relative amount is not unprecedented. We manage this every quarter and the best evidence of our ability to do it going forward is the fact that we have done it for many years in the past. So I think a lot of those factors are going to come to bear, <UNK>. We see our model is intact and we see no reason why we wouldn't be able to overcome these headwinds. Yes, you're right, we tend to focus on our big brands because our big brands move the needle for us and that is how we talk on these calls. We have a lot of smaller brands that are doing fantastically well. A brand like Kipling which was a brand we don't talk about much, it was a small brand, it is approaching the size that Vans was when we acquired it. So it is becoming not such a small brand and it is growing. It is one of our fastest-growing brands consistently over the last four years. So that is just one. Napapijri is another one that you called out. We are having great growth in that brand. Eagle Creek is a very small brand for us but a really important brand in the outdoor luggage space and for Consumer Reports readers to have discovered it and name it the Best Luggage Brand of 2015 is remarkable. And I couldn't be more proud of that group. And we think all those brands have run way and collectively they are an important part of our growth story. I couldn't do that accurately in my head on this call. It might be a conversation we have later. Thanks, <UNK>. Mountain Athletics is a very important new line extension, new collection that The North Face has been focusing on. It is really important in being able to spread The North Face beyond its second half concentration into becoming a true 12 months out of the year brand and our consumer insights is what really has led the team to the way it is positioned. You heard me talk about in my comments, it is about training for the activities that are relevant to The North Face consumer. It could be that ski adventure, climbing, a long hike that someone has been focused on. Or if you are just part of that focused consumer group in your everyday life, it is a method of training that really resonates with you. We see the distribution opportunity being very consistent with where the brand is distributed today. Specialty retailer is an important part but where we are seeing very good placement and very good sellthrough is in the sporting goods channel. The department store piece, which is smaller for the brand absolutely has seen good placement. And then our own D2C and specifically e-commerce where we are able to really present the brand, present the collection and the theory behind Mountain Athletics training we have seen really good strong growth on a quarter-by-quarter basis. And, <UNK>, just to give you an international point of view, we just launched it a little bit later than in the US and it is in the market right now and the sellout data are phenomenal, really doing well. So I will start with Vans. As you saw, they had a spectacular quarter yet again and that is broad-based. It is across all categories, all genders and all channels and regions. So apparel is growing is a very important element of that brand's go-to-market strategy and the collaborations that they have brought to market. Disney wasn't just a footwear collaboration, it came to life in apparel in a really unique and fun way. And at Timberland, continues to be a big focus for us. As I have said before, we are just beginning to get placement and penetration here in the US market. Our greatest go-to-market presence is within our own retail and it is an important focus. It is part of the three areas that we have committed to really drive, men's footwear, women's footwear, and men's apparel. So really happy with both businesses' apparel growth. Thanks, Lindsey. No comments on outdoor growth for the back half of the year. I will remind you, <UNK>, that particularly at The North Face, the 53rd week last year was extremely helpful. You might remember in the first-quarter of this year, we talked about the slowdown in the growth rate of The North Face. It was because they traded the first week of January for the first week of April and obviously The North Face model first week of January is more important than the first week of April. But we are up against that in our growth rates for fall. We are not taking our guidance up on Outdoor in Outdoor or Action Sports but we are very pleased with where we are positioned right now. I think it was all in there, <UNK>, but you nailed it. It is really leverage on SG&A is really what you need to make your model work. Because all of the other factors, shares are the same, we said about 24 on the tax rate. Obviously we talked about the gross margin. So the difference is that higher volume is driving leverage and remember that jeanswear business, that is their model, right, relatively low margins based on the channels they play in. And they drive volume and that drops right to the bottom line, that is why we see that 19% or so operating income for jeanswear. Maybe I start with Europe. As you heard us saying, we had a strong quarter, up 11%. I guess the good news is most of our brands in the portfolio were growing so from a brand point of view, that is the first point. The second one, we see good strength in most of the geographies. It is not just bumping in one area so all over. In Southern Europe, particularly strong, it is good in the Scandinavian piece and the UK, also the Greater German area. And even Greece. I looked into Greece. Even if it is small for us, we have a subsidiary there that is a few percent up to last year which is really surprising considering what is going on in that market. And then, <UNK>, to your tourist question. We have seen those large tourist markets of Southern Florida, New York and to some degree, Las Vegas impacted by that international tourist. What is interesting is the offset is we are seeing really strong comps in our international retail as that consumer stays home. I think the important thing to remember, the D2C is a smaller percentage of our total revenue, strong wholesale base and very balanced and broad platform by which our business is driving the revenue. <UNK>, we are happy that we get a few American tourists more now in Europe. Thank you all for your time and attention this morning. We are thrilled with how the quarter played out with currency neutral growth of 10% on the top line and 22% on the bottom line. I hope you sensed our confidence as we face the back half of this year which is when most of our business comes together but we are confident. Look forward to talking to you next quarter.

2015_VFC

2016

FCF

FCF #Hey, <UNK>. I think without the acquisitions we would feel very good about that, but the operating expenses we'll be adding for the 13 branches will be about $6.8 million on an annualized basis, and with Delaware County Bank, it looks like about $9.8 million, and then moving a little higher than that. Up to $13 million or so. So that's going to add to our expense base, but our revenue will need to out run that. And since you mention it, <UNK>, it's a great question. We've targeted that $160 million figure and we've talked about it for some time. Obviously, as we do more acquisitions and we grow, we will need to continue to invest in our businesses. So we're probably going to migrate to really talking about net efficiency ratio, the core efficiency ratio and the stated efficiency ratio, as opposed to just a dollar figure target. In the near term, though, we do think that, yes, the acquisitions are going to add to the dollar figure of what we have to spend, but the core rest of the bank should be operating right about that $160 million level. At least for the near-term and probably next year. Yes, the pipelines look good. We have been fairly disciplined with a rather large portfolio of our indirect auto business and purposely ran that off just given the spreads. The downdraft there year over year is over $70 million. I think that will continue. We like the prospects of the business long term, particularly if short term rates start to move up a little bit. So we're kind of hanging with it. So that's obviously impacting a little bit of our growth. There is really an ebb and flow to the C&I and the commercial real estate business. We have pretty good pipelines as we head into the fourth quarter. We've also really looked closely at our risk appetite. We've had a little energy exposure and just paring some things from time to time, and so just readjusting that. We think with a full team in Ohio that will more than offset that and get us back up to ---+ our guidance has been mid single-digits and hopefully we can get to where we are consistently a little bit on the high end of that. Thank you. Yes, thanks. I appreciate the question. It is not pleasing to us, obviously, that it's coming in at the high end of the range. There are couple of things that happened in the middle of this year that are going to change as we go into fourth quarter. Before we had pursued a branch acquisition, we were pursuing deposit growth to keep up with our loan growth and had offered some kind of certain market specials for certain types of deposits. Some of those will start rolling off in the fourth quarter. So that should help the margin a little bit. And then, obviously, the bigger effect is going to be the impact of the branch acquisition, which should close here towards the end of the fourth quarter. So there won't be a tremendous effect on the branch acquisition in the fourth quarter because it's going to close towards the end, but some effect. But it's going to start replacing the short term borrowings with the longer term deposits at a cheaper rate. The effect could be particular pronounced if the Fed raises rates in December, then if we hadn't done the branches, our short term borrowings would've raised up almost immediately, obviously, with the branches placed in short-term borrowing, the rates on those borrowings would not be going up. So those will come into effect. All that being said, we had ---+ I think when we announced the branch acquisition, we had said that we expected from that probably about a 5 basis point improvement in the margin. That wasn't baking in a rate increase in December, that I just mentioned, so I do not mean to confuse that issue. So that would ---+ just as result from the branch acquisition probably take the margin ---+ our expected range of the margin from 3.20% to 3.30%, up to more likely 3.25% to 3.35%. This is <UNK>. I would just add, somewhat encouragingly, as we look at our corporate banking, small business and our mortgage loan portfolios and what we're adding volume on here in the last quarter, those spreads seem to be above our 12 month rolling average, and as <UNK> shared in his comments, our replacement yields for newer loans seem to be now eclipsing the runoff. The other thing I would share, just anecdotally, as I talk to our lenders, they do feel like credit structures have stabilized a bit and they are not ---+ and I quote ---+ they feel like they are not feeling the pricing pressure that they have had over the last few years. So for what it's worth. Lower. (laughter) I know you and I have talked about this a lot. We stubbed our toe a little bit with energy, otherwise the core performance over the last four quarters have been clearer sooner. I think we're little bit more reticent on energy going forward. And we have to be very thoughtful and discerning regarding some certain segments. So I will keep you posted as the story unfolds here. Thanks. Appreciate your interest in our Company and look forward to seeing a number of you in the next quarter or two, either on the road or at your conferences. Thank you very much.

2016_FCF

2017

MGLN

MGLN #Thank you, <UNK>. Good morning, and thank you all for joining us today. In my comments this morning, I will review the second quarter results, discuss the Senior Whole Health acquisition, touch on the current regulatory environment and provide some additional color on the second half of the year and our longer-term outlook. We reported second quarter net revenue of $1.4 billion, net income of $5.5 million and EPS of $0.23 per share. Our adjusted net income was $14.1 million or $0.59 per share, and we achieved as a profit $54.3 million. The results for the current quarter were negatively impacted by cost pressures in 2 of our commercial healthcare accounts as well as adverse experience in our Part D plan. While we are confirming our 2017 guidance for the year, we now expect to be approximately at the lower end of our ranges. Jon will provide more details on the quarterly results and guidance later in the call. Next, let me share some highlights on the acquisition of Senior Whole Health and how it aligns with our Magellan Complete Care business. We are very excited about this acquisition and the strategic capabilities and expertise it brings us. Senior Whole Health is a specialty managed care organization with a focus on complex high-risk populations. They provide both Medicare and Medicaid dual-eligible benefits and serve more than 22,000 members across Massachusetts and New York as of July 2017. Senior Whole Health helps to accelerate our Magellan Complete Care strategy. In Massachusetts, they serve more than 13,000 members as part of the Senior Care Options program, which offers members at age 65 or older quality health care that combines Medicare health services with Medicaid social support services. Senior Whole Health has participated in Senior Care Options since the program's inception in 2004. In New York, Senior Whole Health offers Medicaid-managed long-term care services to nearly 9,000 members combining Magellan's New York program with Senior Whole Health will enhance our scale and capabilities. It's important to note that Managed Long-Term Services and Supports programs represent a significant growth opportunity for Magellan Healthcare. Positioning Magellan as a leader in this space makes sense both from a strategic and a financial perspective. Senior Whole Health has an outstanding management team and reputation, a strong track record of growth and extensive experience facilitating high-quality, cost-effective health care for its members. Combining the experience, capabilities and services of our 2 companies, it enhances our strategy of being a full service managed-care company focused on complex populations, such as Managed Long Term Services and Supports. We expect this transaction to close by the end of the first quarter of 2018 and to be accretive to earnings in the 12 months following. Jon will speak more to the financials later in the call. Upon closing this acquisition, Magellan will operate specialized managed care plans focused on complex populations in 4 states: Florida, New York, Virginia and Massachusetts, with approximately $2.5 billion in annual revenue. This represents significant growth since 2013 when we launched the Magellan Complete Care strategy and set a goal of $2.5 billion revenue by 2018. Specific to our plan in Florida, the reprocurement, also known as the ITN, has been released, and it was written largely as we expected. The responses are due in November and the state expects to make a decision in April of 2018. We feel very good about our current success in Florida, but of course, there are no guarantees with any reprocurement. In Virginia, implementation is on track with a go-live scheduled for the Tidewater region on August 1 as well as the Central region on September 1. As we noted during our Investor Day, we anticipate a $20 billion pipeline of Medicaid new business opportunities in 7 to 10 states over the next 5 years. I'm very proud of our success in Magellan Complete Care and look forward to capitalizing on the additional opportunities ahead. Now turning to the regulatory environment, there has been significant activity at the federal level. From last week's intense discussion on health care reform issues to the past few days incredible level of activity in the Senate. Meanwhile, Senate and House committees remain focused on other health care matters, including reauthorization of the CHIP program and the Medicare Advantage Special Needs Plan. The same is true in the state capitals. States continue to look for ways to improve the quality of care and reduce cost for their Medicaid populations. States are considering new waivers that include additional populations for managed care, mandatory enrollment in certain programs and personal responsibility and member co-payments; developments, we are closely tracking. The fluidity of the past few weeks is proof of what we shared last month during our Investor Day. Healthcare will continue to be a central part of federal and state policy, the debate for the foreseeable future and a focus of congressional and executive branch activity for the next few months. We will continue to remain engaged in these discussions and stand ready to provide our expertise and innovative solutions for the fastest-growing most complex areas of health care. Magellan is well positioned to succeed, regardless of what changes may occur at the federal level. Currently, we have limited exposure since less than 5% of our revenue is derived from the AC<UNK> Managing complex populations will drive most of the ---+ the most significant growth opportunities over the next several years. And addressing the needs of these populations requires our unique expertise. The changing health care environment requires companies who can respond quickly. Lastly, as the role of states grows, we have the long-standing relationships and expertise to provide input as they create new and innovative programs. For the balance of the year, we are focused on the successful implementation of our Virginia program and actions to improve results for our commercial healthcare business. Looking ahead, Magellan is well positioned for growth beyond 2017. As we discussed at Investor Day, our long-term objectives include organic revenue growth of 10% to 15%; organic segment profit growth of approximately 10%; and adjusted earnings per share growth of 10% to 15%, which includes the impact of capital deployment. Leading humanity to healthy vibrant lives is a pursuit that guides and inspires us. With our 2 growth engines, healthcare and pharmacy, Magellan is a repositioned company at an inflection point for sustained growth, never losing sight of the customers we work with and the members that we serve. At this time, I'd like to turn the call over to our Chief Financial Officer, Jon <UNK>. Jon. Great. Thanks, <UNK>, and good morning, everyone. In my comments this morning, I'll review second quarter results, discuss our outlook for the full year and share additional details on the recently announced acquisition of Senior Whole Health. For the quarter, revenue was $1.4 billion, which represents an increase of 22% over the same period in 2016. This increase was mainly driven by net new business growth and the annualization of revenue from prior year acquisitions. Net income was $5.5 million, and EPS was $0.23. This compares to net income and EPS of $4 million and $0.16 for the second quarter of 2016. Adjusted net income was $14.1 million, and adjusted EPS was $0.59. This compares to adjusted net income of $14.4 million and adjusted EPS of $0.58 to the second quarter of 2016. Segment profit was $54.3 million for the second quarter compared to segment profit of $56.9 million in the second quarter of 2016. The current quarter results included approximately $3 million of unfavorable out-of-period items, primarily related to unfavorable care development in the healthcare segment. For our healthcare business, segment profit for the second quarter of 2017 was $30 million, which represents a decrease of 13% compared to the second quarter of 2016. This decrease is mainly due to the moratorium on the Health Insurer Fee, cost pressures in 2 of our commercial healthcare accounts, contract implementation costs and net unfavorable out-of-period items, partially offset by improved results in our government healthcare business and contributions from AFSC, which was acquired in July 2016. Now relative to the cost pressures emerging in 2 of our commercial healthcare accounts, we are aggressively working on improvement actions, including both care management initiatives and potential rate adjustments, and expect to see more favorable results in the second half of the year. Our pipeline continues to be robust with interest from both current and new health plan customers in our behavioral and specialty products. As we continue to work through these opportunities, we are seeing some delays in new sales and the timing of customer implementations. Turning to pharmacy management, we reported segment profit of $33.9 million for the quarter ended June 30, 2017, which was an increase of 5% from the second quarter of 2016. The increase was primarily due to net business growth and earnings from the Veridicus acquisition, partially offset by higher investments to support growth initiatives. In our Part D business, we've experienced approximately $9 million in losses through the first half of 2017. Based on our enrollment profile and claims experience through June 30 as well as normal benefit seasonality, we now expect the Part D results to be a loss of approximately $10 million for the full year, which is below our previous expectations of breakeven. Last month, we submitted our Part D bid to CMS for the 2018 plan year. In the bid, we made material changes to our formulary to better align it with the PDP marketplace offerings and also increased our member premiums to correspond with emerging claims experience. While we expect that this will result in lower membership and revenue in 2018, we believe that these actions will lead to improved member selection and financial results in 2018 and beyond. Regarding other financial results, corporate cost, inclusive of eliminations but excluding stock compensation expense, totaled $9.6 million, which is roughly comparable to the $9.8 million in the second quarter of 2016. Total direct service and operating expenses, excluding stock compensation expense, changes in fair value of contingent consideration and impairment of acquisition intangibles, was 15.5% of revenue in the current quarter compared to 17.1% in the prior year quarter. This decrease is primarily due to the suspension of the Health Insurer Fee, business growth and mix, partially offset by startup costs in Virginia. Stock compensation expense for the current quarter was $11.4 million, an increase of $1.9 million from the prior year quarter. The change is related primarily to higher vesting of employee stock awards and divesting of restricted stock associated with the AFSC acquisition. The effective income tax rate for the 6 months ended June 30, 2017, was 43.8%. We continue to expect a full year effective income tax rate of approximately 40%. Our cash flow from operations for the 6 months ended June 30, 2017, was $3.8 million. This compares to net cash used by operating activities of $119.2 million for the prior year period, which was impacted by several factors, including the contingent consideration payment related to the CDMI acquisition, the initial buildup of Part D receivables and the run-out of claims related to our former contract with the State of Iowa. As of June 30, 2017, the company's unrestricted cash and investments totaled $273.3 million versus $293.9 million at December 31, 2016. Approximately $116.6 million of the unrestricted cash and investments at June 30, 2017, related to excess capital and undistributed earnings held at regulated entities. Restricted cash and investments at June 30, 2017, was $316.9 million, similar to the balance of December 31, 2016. Year-to-date through July 21, 2017, we've repurchased approximately 90,000 shares for $6.4 million. We have $68.4 million remaining in our share repurchase authorization program, which our Board of Directors has extended for 1 year through October 26, 2018. We're planning to refinance our credit facility by the end of the third quarter, in order to retire our existing bank debt and provide some additional capital flexibility. We expect a new facility will be a mix of bank revolver, bank term debt and a public bond offering. We also plan a subsequent public bond offering to fund the Senior Whole Health acquisition. Both completion of all of the anticipated financing activity, we'd expect our leverage ratio of net debt-to-EBITDA to remain below our target of 2.5x. Now turning to our 2017 guidance. While we're confirming our guidance for 2017, we expect our results to be approximately at the low end of our ranges for the following reasons: timing of sales and implementation of new business; isolated care pressures in 2 of our commercial healthcare accounts; and adverse experience in our Part D plan. As a reminder, our guidance ranges are as follows: revenue of $5.8 billion to $6.1 billion, net income of $90 million to $114 million, EPS in the range of $3.72 to $4.71, segment profit of $329 million to $349 million, adjusted net income of $123 million to $145 million, adjusted EPS in the range of $5.08 to $5.99 and cash flow from operations in the range of $150 million to $182 million. Compared to the first half of 2017, we expect an increase segment profit run rate for the remainder of the year due to the following factors: the implementation of actions to improve results in commercial health care, business growth, rate increases, normal earning seasonality in our Part D plan and the timing of customer settlements across our businesses. As <UNK> mentioned earlier in the call, we anticipate the acquisition of Senior Whole Health will close by the end of first quarter of 2018 after we obtain the required regulatory approval. Senior Whole Health has achieved impressive growth over the last few years, and in 2017 is expected to have revenue of approximately $1 billion as well as segment profit of approximately $60 million. We expect the impact of this acquisition will be accretive in the 12 months following closing of approximately $0.60 for EPS and $1 for adjusted EPS. Beyond 2018, we're also anticipating synergies of approximately $10 million annually as a result of savings from insourcing pharmacy and behavioral health services as well as administrative expense efficiencies. In 2017, we expect acquisition and integration cost associated with the Senior Whole Health acquisition to be approximately $3 million to $5 million. In summary, as <UNK> noted, we'll be focused on execution during the second half of the year to achieve solid segment profit growth and to position us well to meet our long-term growth objectives. With that, I'll now turn the call back over to the operator for questions. Operator. Dave, let me try to take all your questions. First, relative to the commercial accounts, I would emphasize these are isolated incidents. And really, there's 2 accounts. The first account is a long-term customer, where in a portion of their program, they experienced higher-than-usual turnover in membership, and the members ---+ and net-net, the members came on, had higher cost and utilization. The second customer was actually a new customer this year. And the use of certain services, again, an isolated portion of the account, were higher than the underwriting data that had indicated, the data that we had used in underwriting. So given, again, the uniqueness of these situations and the fact that there were significant changes versus what would have been expected coming into the year, we are working with both customers to obtain appropriate rate adjustments and are also in the process of developing and implementing care management actions. Now every situation is different, so it's a little bit hard to generalize. But I would say, in general, where there are changes in a calendar year, whether significant population changes or new programs being introduced, second quarter does tend to be a time when you get a good run rate for the year. First quarter, you get some indication. We did have some indication that there were some volatility in these customers. But first quarter is tough because you don't have complete claims at that point. So second quarter, you'd have a much more complete run rate. And we feel comfortable that we've got a good bead on it. And net-net, we still have some execution to do. But I'm confident based on where we are that we will make the improvements we need over the second half of the year. And most importantly, I don't believe either of these issues will persist beyond 2017. So in 2018, we should have things fully corrected. Hopefully, that answers your questions, Dave. Yes. I mean the short answer is ---+ on the second part of your question is, yes, that's part of it. Although there is always an unfavorable development as well as in utilization within the quarter, a lot of puts and takes. There's always going to be accounts that are positive and negative. So it's a little bit hard to isolate what part of the $3 million. But yes, that was definitely a part of it. In terms of impacting the quarter, again, that's also a little hard to quantify, because it depends on what your starting point is. But I would say that, relative to where we were coming into the quarter. So if you look at things at the end of first quarter and even as we project for the full year, I would say things got worse in the sort of $5 million to $10 million range on those customers. But again, it depends on what your starting point is when you are measuring it. No ---+ I mean, roughly speaking, yes. Yes. Again, we do expect that we will see material improvement in these customers over the balance of the year. So we think without splitting hairs in terms ---+ are we getting back to what the ultimate run rate will be. We think we will largely solve the problem over the second half of the year, based on where we are today, and we've made good progress. <UNK>, here as well. We don't anticipate these issues falling into 2018 either. So these are shorter-term client issues we think we can resolve. Yes. I would say a couple of things, Dave. And again, this is a similar instance to what we talked earlier in the commercial side. Again, second quarter is when you get ---+ we get really a good bead on Part D as well for the year. As you probably know from having watched us, we did see a pretty substantial increase in membership this year. And really looking at this, as we've looked at it over the past couple of months, one, we do have a larger formulary than average in the market. We're probably more consistent with some of the richer, enhanced plans out there. And as a result, we believe that, that has led to some adverse selection with higher utilizers as part of that significant membership growth we're seeing. Now again, you do get higher rebates in some cases for those drugs, but we are not able to, kind of, completely offset that higher utilization. Now year-over-year, though, although the loss is similar, the $10 million loss, we do have ---+ we're projecting roughly double the revenue this year. So we have made some improvements in the margins year-over-year, but obviously not getting all the way to where it's fully corrected. Now the good news is, we ---+ for 2018, we were able to reflect the emerging experience into our bid. We've made much more significant changes in the formulary to the point now where we believe we're going to be fully competitive with the market and also have relatively material member premium increases built in, especially in some of the geographies where they've been less profitable. So net-net, again, 2018 is the first year we've really taken aggressive action to get that formulary in line with the competition, and again, fully reflect the current run rate. And while, as noted in the ---+ as noted earlier, we do think we'll see some membership in revenue losses in '18 as a result of that. We are confident and I'm confident that we'll see much stronger financial results. Okay. Couple of different questions in there. So Virginia in this quarter was sort of in the $5 million to $6 million of readiness expenses, and there was a little bit in first quarter, just to give you a sense for what's flowed through year-to-date. In terms of third quarter ---+ so we've talked about it in the script, the full year versus the first half of the year and the items that are driving that. Obviously, the improvement in Part D since we lost $9 million to-date as well as we talked about the commercial healthcare accounts and the actions we've got, other rate increases, businesses growth and the timing of customer settlement. Now that ---+ I'd say if you think about those items, the timing of customer settlement tends to be heavier in the fourth quarter, but the other items should be ---+ the improvement we should start to see ---+ we should see significant results in third quarter. So I would expect fourth quarter will be a little bit higher than third, if you think about getting to that lower end of the guidance. But third quarter should be a material step up from where we are for the first 6 months on a pro-rata basis. Yes. Well, I think, so there's 2 different issues that play out. One is from a pattern standpoint, we still expect second half of the year to be better than first half because of the benefit seasonality. Quarter-to-quarter, things can bounce around a little bit. And last year, you are right, fourth quarter was a little bit higher. But we looked at that really more as an aberration than anything else. So I would just look at it as, again, second half of the year, we expect to be roughly breakeven, given we're $9 million loss already in the year, based on our actuarial projections in both our internal projections and from our outside actuaries. So that's that. In terms of what's different as we go forward. Though, again, it really is going to be in 2018 the impact of restricting the formulary that we think will have the bigger impact as we go forward. Now we did a little bit of that last year as you might recall. And that's improved the margin to sort of cut the losses on a percentage of revenue basis in half this year. But in order for us to fully get to a profitable run rate, we believe, again, we got to get that formulary to be competitive with the market as well as on a targeted basis getting rates aligned at a place where we can be profitable. Yes. I wouldn't view it ---+ nothing that would jump out. I think as people are ---+ as there's a lot of change in the market in the last month of the year, sometimes people might utilize services because they are not sure what's going to be covered, or in some cases where we made formulary changes, they might be getting drugs. But ---+ and there was growth through the year as well, last year membership growth. So you had some people that were coming on that hadn't used their benefits yet. So the pattern was a little bit different in the fourth quarter. But I wouldn't look at it as material, I mean, you're going to see some volatility from quarter-to-quarter in the program. I think we are roughly a little bit over 100,000 in the second quarter, and we were in the low 60s at year-end, just giving you some sense for the growth this year. Yes, <UNK>, we've had a very robust pipeline. And we still have a very robust pipeline. I think sometimes customers might be a little bit slower to decide. And there might have been some customers, and were, in this particular case, this year, who actually agreed to go with us, which we were thrilled about, but that decision came a little later or their implementations were a little later. So we're not displeased that they decided to go with us, but the implementations in a couple of cases will be in 2018 versus 2017. It bodes well for 2018, but that's typically the case, it's not that the pipeline is any smaller or success rate is any less; in fact, it's quite the opposite. We've been very successful out in the marketplace and would anticipate future success as well. You bet. The clients today ---+ our customers today are looking for new solutions, because they felt the financial pressure largely from the exchange challenges they've had last year and this year. They've also been much more open to new products and new services, just trying to find ways to be more efficient about delivering those services and optimize the quality. So we see an increase in just straight behavioral health, but importantly, the clients of today, very dissimilar to 2 or 3 years ago, are looking for more of an integrated approach. So while they'll buy BH or have historically been a BH client, they are looking for add-on services. These are clients where we have great relationships. They've been appreciative of the level of service and the outcomes they've had with us. And so now they're willing to consider other options, such as MSK, RBM, enhanced RBM, converting from fee-for-service to a risk product with RB<UNK> So we have a host of these new add-on services that have been very successful for us. For example, MSK over the last 2 years it has gone from basically a product introduction to 7 million covered lives for us. So these are real opportunities we see to develop add-on products and services. Again, the difference is, historically, it used to be a kind of one-dimensional buying a BH, but today, we are seeing more of that. But we're also seeing clients add-on services. We have many of our clients that are utilizing not just 1 service, but 2, 3, 4 and 5 of our services and more. The other thing that's a little bit different is that we've had add-on clients that have crossed over from medical services to pharmaceutical services. And this is particularly true with the medical specialty area, where they see a real challenge with controlling their specialty drug cost being the largest single component of their increase. And so they've had a good experience with us on the RBM side, MSK or BH side. They are more likely to look at us also and engage on the Rx side and ---+ medical specialty particularly. The other thing, just quickly, I'd add to <UNK>'s comments, which were right on, is that 2 things that we're seeing that have clearly picked up over the last year or so, <UNK>, are: one, behavioral health where that had been slow for a number of years, I think because of some of the complex populations that health insurers are taking on vis-\u0102\xa0-vis the exchanges, Medicaid expansion, there is more demand for our services in behavioral health, than we've seen in some time, and some of that, I think, is the capabilities and the talent that we've built up internally. Second thing is ---+ I mean, probably for similar reasons is we are seeing more interest in risk coverage, which has been in our sweet spot historically, where ---+ both from new customers, but also ASO customers that were able to convert to risk. So those areas have picked up, which obviously is a good thing for us. The other thing I'd say to (inaudible) a little bit more, <UNK>, I was just reflecting upon 2, 3, 4 years ago versus today. We've spent a lot of resource, both financially as well as our personnel, in modernizing our product. And that I think is true of the BH, it's also true of RBM and musculoskeletal is a good example of that. And so we're able to bring new services and very innovative services to the marketplace that really didn't exist before. COBALT, for example, Computerized Cognitive Behavioral Therapy, again, a new product introduction and nothing else like it in the industry. We see out in the commercial space, particularly we're having great success, a great pipeline. I think we've got more than a $20 billion pipeline on the public sector side with the integrated approach there. But on the commercial side, we are being very successful at the close rate much more so than 3 or 4 years ago. I think it has to do with the need of the client. It has to do with the level of new product introduction innovation and also the competitive landscape. We've been very successful out there being more, again, innovative and be perceived as being the player that can really be more efficient at delivering care and ---+ at a time, where our clients really have a dramatic need. Well, let me just address a few of your questions, Ana. Good question. Let me just addressed Florida. Florida has come out with the ITN to ---+ they've put up basically this ITN, intent to negotiate with 11 players across all regions of Florida. We feel that we're very well positioned in Florida. We have a good relationship with them. And we've shown and demonstrated significant quality improvements within the population. So all good things. With the ITN, they have asked us to come back with innovative solutions, not really limiting but it's actually quite expansive in terms of the kinds of things that they like to see us propose and others propose that would really increase the efficiency, the quality and the cost elements for the plan in Florida. So it really isn't less limiting. It's actually more expansive than it was before, but not dissimilar to what they did in 2014. So we're feeling it's a great opportunity for us to not only maintain a client relationship, but potentially expand based on that relationship. I'll also add, the language, Ana, that's in the ITN is, in fact, virtually identical to the last go-round. So it does enable specialty plans. It doesn't specifically speak to all the different types of specialty plans but it is identical. So again, it was as we expected, and we believe we're positioned well as we go forward. Yes ---+ no, no, I think that's fair. And I think we've talked about before that we're this year as a result of the run rate coming into the year as well as the success we've had in care management initiatives running strongly in Florida this year. We think something in the mid-single-digit range is more reasonable as you think about things going forward, where we're running higher right now. So I think it's reasonable if you think of something in the kind of mid- to higher-80s on loss ratio, as we go forward, as kind of a normal run rate. And that's consistent with how we've talked about, not just Florida but the government segment in the past. In terms of some of your other questions, again, we don't think that the commercial cost of care issues will be issues in 2018. We're confident that we'll be correcting them in the second half of the year. Part D as we talked about ---+ we believe, we'll see improvement as we go through next year. So same thing in Virginia where we're making investments to get it off the ground this year, but believe, we can get that to breakeven or better next year. And of course, we've talked about Senior Whole Health in the accretion roughly the dollar in adjusted EPS going forward. So I think you're thinking about many of the right things. And with ---+ certainly with new business growth, as we go forward, as <UNK> alluded to, 2018 is off to a great start, and we see a lot of upside there. Great. Well, we appreciate you joining us here for our second quarter earnings call and look forward to being with you again at our next quarter call. Thanks very much. Good day.

2017_MGLN

2016

CTRL

CTRL #Thank you, operator. Good afternoon, everyone, and thank you for joining Control4's earnings conference call for the first quarter of 2016. My name is <UNK> <UNK>, and I'm the Chief Financial Officer for Control4. With me on the call today is <UNK> <UNK>, our Chairman and Chief Executive Officer. Prior to this call, we distributed our Q1 2016 earnings release over the wire services, and we have posted it on our website at investor. Control4.com, as well as furnished it to the SEC on Form 8-K. This call is also being webcast, and a replay will be available on the Investor Relations section of our website for 30 days. Before we begin, I would like to remind you that during today's call we will be making forward-looking statements regarding future events and financial performance, including our financial outlook for the second quarter of 2016 and our revenue and non-GAAP net income outlook for the full year of 2016. We caution you that such statements reflect our best judgment as of today, May 5, based on factors that are currently known to us, and that actual future events or results could differ materially due to a number of factors, many of which are beyond our control. For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to our filings with the SEC, including the 8-K we filed earlier today, which contains our Q1 2016 earnings release. Control4 disclaims any obligation to update or revise these forward-looking statements to reflect future events or circumstances. During the call we will also discuss non-GAAP financial measures. Unless we specifically state otherwise, the non-revenue financial measures that we discuss today were not prepared in accordance with Generally Accepted Accounting Principles, in that they exclude expenses related to stock-based compensation, acquisition-related costs, the amortization of intangible assets, litigation settlement expenses, and certain other items that are detailed in the reconciliation of GAAP and non-GAAP results provided in today's press release and posted on the Investor Relations section of our website. With that, I will turn the call over to <UNK>. Thanks, <UNK>. Welcome, everyone, and thank you for joining us on the Control4 earnings call for the first quarter of 2016. I am pleased to report that Control4 experienced a strong quarter, with revenues that exceeded our guidance, and earnings that came in at the high end of our guidance range. Here are the high-level financial results for Q1. Revenue for the quarter was $43 million, $1.5 million above the high end of our guidance, representing a total year-over-year growth of 34%, and 24% organic Control4 growth. Q1 total revenue included $3.2 million of Pakedge networking products that were sold in February and March. Our organic revenue outperformance in the quarter was fueled, in part, by strong demand for our new entertainment and automation series of controllers, which we announced and began shipping on January 26. During the quarter we shipped over 24,000 total controllers, a year-over-year increase of 73%. Our upside revenue, combined with steady operating expenses, enabled us to deliver non-GAAP net income of $954,000 in Q1, or $0.04 per diluted share, which was at the high end of our guidance range. As we have noted in prior calls, Control4's mission is to be both the platform ecosystem and a premium solution market leader in the home automation and connected home market. Our strategy is threefold: one, to provide premium, high-quality, and durable networking and connected home solutions for homeowners and businesses, focused in the area of family room entertainment, multiroom media, intelligent lighting, comfort and convenience, and home security and safety; two, to enable consumer choice and deliver automated lifestyle experiences by integrating with a broad number of third-party products produced by hundreds of other manufacturers; and, three, to deliver our solutions to families and businesses through an expanding global professional dealer network specifically intended to deliver the highest levels of consistent end-customer satisfaction. On our last earnings call, I described four initiatives that are focused on strengthening our business and increasing shareholder value. They are expanding our profitability, introducing new products, acquiring Pakedge, and allocating our capital prudently. Today I will provide a brief update on these initiatives. First, expanding profitability: we are executing on our operating plan, which, among other things, holds our organic operating expenses to approximately 2015 levels, with the objective of delivering improved profitability and cash flow in 2016. Our non-GAAP operating expenses for the quarter, excluding Pakedge, were flat when compared to Q4 of 2015. We also held, and intend to keep, Pakedge operating expenses level, with moderate rebalancing expected as integration into Control4 proceeds. As noted on our last earnings call, we expect that our revenue growth, combined with a focused approach to expense management, will enable Control4 to generate non-GAAP net income between $16 million and $18 million this year, a 2X improvement over 2015. We are reiterating that expectation today. Second, on new products: on January 26, we introduced and began delivering our new entertainment and automation series controllers, along with a new version of the Control4 OS. Worldwide enthusiasm for our new products and software is aligning well with stronger end-customer demand which is being reported to us by our dealers. The pace of new product orders is smooth and growing, and we expect to build on this momentum during the coming months and quarters. The new EA series expands our use case and price point range above and below their predecessor HC series controllers that we launched in 2012 with two models, the HC-250 at $750 pre-MSRP for small installations; and the HC-800 at $1,500 for large installations. Our new EA series consists of three controller models: the EA-1 at $500 MSRP; the EA-3 at $1,000; and the EA-5 at $2,000 MSRP. Since their January 6 introduction, more than 19,500 EA series controllers were ordered by, and delivered to, our dealers during Q1. During the quarter, our dealers also ordered approximately 4,500 HC series controllers, which remain available for purchase, are very competitive versus any non-Control4 alternative, and run our most current Control4 software, OS 2.8.2. Total controllers ordered by and delivered to Control4 dealers were up 73% year-over-year from 13,900 in Q1 2015 to 24,100 in Q1 of 2016. Orders for the EA series continued to be solid during April, including repeat orders from dealers who took delivery of EAs during Q1. In the initial traction of the EA series provides early validation that our thesis ---+ that the EA-1 and the EA-5 are market expanding products for us ---+ notably, the EA-1 for the introductory home automation segments, and the EA-5 for the high-end and very large automation installations. During the initial months of EA availability, we are observing rapid adoption by our existing dealers and the beginning of a mind share shift towards Control4 for one-room AV automation and lower cost start of systems. Our new EA-3 and EA-5 controllers are also being well received by dealers and end customers for traditional and very large whole-home automation installations, resulting in strong order rates and unit volumes that were well-balanced between these two models. Control4 is committed to a single, broad-based software platform for smart device orchestration and home automation functionality, from simpler, entry-level systems to the most sophisticated and elegant. We are recommending the EA series for all new installations, as well as for expansion and upgrades within our existing installed base of more than 240,000 homes, each of which already integrate with, on average, more than 40 connected devices per home, with many homes integrating hundreds of devices. Closely following the debut of our EA series, on February 9 we announced and began delivering new wireless controlled lighting products for international markets. Reception to the new international form factored lighting products is also enthusiastic. Our dealers are beginning to specify Control4 wireless lighting in new project proposals in Europe, Latin America, and Asia. Since Control4 wireless lighting is new in many of these international markets, project lead times need to be taken into consideration, and we expect to see growing contribution from these international wireless lighting products in the coming quarters. Third, Pakedge: as we first reported during our earnings call last quarter, on January 29 we acquired Pakedge Device & Software. Pakedge is a leader in advanced home networking infrastructure products and cloud networking management capabilities for both wireless and wired networking solutions. The response by Control4 dealers to Pakedge has been positive, with over 370 Control4 dealers purchasing Pakedge products for the very first time in the three months since the acquisition. Pakedge dealers and distributors who are not Control4 dealers ---+ approximately 1,200 ---+ have been cautiously neutral, with some adopting a wait-and-see perspective, which we had anticipated. Control4 is committed to maintaining and enhancing strong relationships with all Pakedge dealers and distributors, regardless of whether they are currently marketing and selling Control4 solutions. We intend to grow the Pakedge networking product business and expand its sales channel of networking specialists. We will encourage all appropriately qualified Pakedge and Control4 dealers to explore both product lines. And we will be actively cross-training and cross-certifying dealers, in accordance with our existing standards of technical proficiency and business practices. The connected home is happening worldwide, whether it be in individual connected point products and apps, or fully orchestrated connected home systems such as Control4. We believe that all connected homes can benefit from more substantial and intelligent networking capabilities. Control4 aims to be the networking provider of choice for the connected home, and we intend to support our expanding global channel of 4,800-plus active dealers in order to do so. We believe one integrated platform becomes a significantly differentiated experience. The power of Control4 is in our ability to seamlessly orchestrate a comprehensive home automation experience, spanning entertainment, smart lighting, comfort and convenience, and safety and security. Networking has always been a key element of Control4 installations, but in the past dealers have procured these networking products from third-party suppliers. We believe that by embracing the Pakedge networking capabilities as an expanded core competence within Control4, by integrating them tightly with our entertainment and automation capabilities, and ensuring a single cloud-based reporting and management solution spans both home networking and connected home devices, that we will be able to deliver a much broader and more differentiated product line to our dealers, and to provide more reliable, integrated experiences to our end customers. Fourth, capital allocation: our balance sheet remains strong, with $47.9 million in cash and investments, and an additional $25 million accessible via our credit facility. Cash conversion from operations remains healthy, and without delay or interruption. From a capital allocation perspective, in order to ensure prompt product delivery in Q2 and Q3 from both Pakedge and Control4, as expected business grows, during Q1 we invested in existing and new product inventory as well as expanded fulfillment capabilities from our facility in Melbourne, Australia. We now have fulfillment centers in Salt Lake, Utah; York, United Kingdom; and Melbourne, Australia. With our solid cash balance, available credit line, and expected improvements in cash flow from operations, we will continue to explore and evaluate strategic acquisition opportunities; and, on a quarterly basis, determine if and when it is appropriate to use a portion of our cash flow from operation to repurchase Control4 shares during open trading windows. We are pleased with the performance in Q1, and we are confident in our ability to expand our connected home ecosystem and, thus, our business. We believe Control4 is centrally well positioned and expanding in the connected home and automated home landscape. Our ability to incorporate and orchestrate thousands of different consumer products via the Control4 platform distinguishes us from individual connected point products, as well as from other home automation offerings, whether professionally installed or self-planned do-it-yourself. Although there is noise in both investment and technology circles about competition from connected point products, and threats from large consumer electronics purveyors, Control4 continues to grow with newly installed homes each month; continues to strengthen our sales and installation network with new, enthusiastic, and skilled independent dealers; and continues to expand our partner ecosystem through the integration of more, and new, third-party devices into our open automation platform. These advances, collectively, continue to strengthen Control4 as the premium and preferred choice for homeowners and their families, custom home builders, independent connected home integrators, and consumer electronics partners. Wrapping up, I want to thank all of our employees, customers, dealers, distributors, suppliers, business partners, and shareholders for their continued support and many contributions to our continued progress. We started 2016 with rapid engagement and good momentum, and we intend to keep racing forward smartly. With that, I'll turn it over to <UNK>. Thanks, <UNK>. A brief reminder before I discuss our financial results: we refer to revenue attributable to sales through dealers located in the United States and Canada as North America core revenue; and revenue attributable to sales through dealers and distributors located throughout the rest of the world as international core revenue. Core revenue does not include revenue from our hospitality business, which is included in other revenue. Turning now to our results for the first quarter of 2016, total revenue for the quarter was $43 million, resulting in year-over-year growth of 34%. Our new networking products contributed about $3.2 million in revenue during the last two months of the quarter, meaning that our organic growth compared to the first quarter of 2015 was 24%. North America core revenue grew 39% year-over-year, although within this growth we continued to experience a slight decline in year-over-year revenue from Canada. Otherwise, nearly all of our 23 US sales regions contributed double-digit, year-over-year growth. The majority of our network product line revenue was also generated in North America. International core revenue grew 15%, reflecting modest economic rebound in many of our international countries, with the exception of Latin America, where we continue to see macroeconomic factors suppressing business. Our non-core other revenue, consisting primarily of hospitality business, grew 101% year-over-year, with hospitality contributing $0.5 million to the quarter. To continue our growth, we remain focused on three broad strategies: first, make our dealers more productive. During the first quarter, we continued our investment in lead generation and cultivation activities and promotion of our system upgrade program, including expansion of our inside sales team to manage a growing volume of inbound leads. Second, increase our wallet share: the revenue of new products and the acquisition of Pakedge has helped increase our addressable market opportunity. Our experience continues to suggest that our dealers prefer to source solutions from Control4 because of our status as a trusted partner, our e-commerce based ordering and delivery system, and the fact that Control4 solutions work better together. As <UNK> mentioned, we saw a strong adoption of our EA series controllers, which drove a significant quarterly increase in controller sales, both sequentially and year-over-year. In the first quarter of 2016, we sold 24,133 controllers worldwide compared to 13,931 in Q1 of 2015, and 16,964 controllers in Q4 of 2015. EA series controller sales indicate strong and rapid adoption, with 19,628 sold and delivered in Q1. Third, add more dealers to our ecosystem: in Q1, we added 99 dealers in North America, the most added in a single quarter since Q3 of 2013. And the total number of active dealers increased to 2,794, up from 2,748 at the end of the fourth quarter. Internationally, we added 44 new direct dealers during Q1. The number of total active direct dealers increased from 816 at the end of Q4, to 840 at the end of Q1. Effective April 1, we adopted a direct-to-dealer distribution model in Australia, taking advantage of existing support and facilities acquired with Nexus in 2015. As of April 30, 2016, we now have approximately 100 direct dealers in Australia, and we expect that number to continue to grow. Additionally, we are committed to supporting the approximately 1,200 unique Pakedge dealers that do not currently carry Control4 solution. Now, looking to several operating financial metrics. Our non-GAAP gross margin percentage in the first quarter of 2016 was 50.7%, equal to the first quarter of last year, and a decrease from 51.7% in Q4 of 2015. Variability in our gross margin percentage compared to Q4 is due to a variety of anticipated factors, including introductory programs for the EA series to facilitate rapid adoption; product mix, including high unit sales of the EA-1, which has a lower gross margin percentage than other controllers; and retail product exchanges from the HC series to the EA series of controllers. We anticipate seeing modest improvements in our gross margin through the balance of the year as we focus on product cost reduction, and realize synergies and fulfillment costs associated with our networking products. A major initiative for us in 2016 is realizing more operating leverage by growing revenue and holding our organic operating expenses generally flat with 2015. Total non-GAAP operating expenses in the first quarter of 2016 were $21 million, or $19.3 million excluding Pakedge expenses, or generally flat when compared to approximately $19.3 million in Q4 of 2015. Research and development expenses during the first quarter of 2016 were $7.6 million or 18% of revenue, compared to $7.3 million or 17% of revenue in Q4 of 2015, and compared to $7.2 million or 22% of revenue during the same Q1 period in 2015. The Q1 year-over-year increase in absolute dollars is due to the acquisition of Pakedge, which contributed $0.7 million in R&D expenses during the quarter. Sales and marketing expenses in the first quarter of 2016 were $9.4 million or 22% of revenue, compared to $8.4 million or 20% of revenue in Q4 of 2015, and compared to $6.9 million or 22% of revenue in Q1 of 2015. The Q1 year-over-year increase in sales and marketing investment includes $1.1 million of Pakedge expenses, and incremental costs associated with having a direct dealer presence in Australia, which became effective on April 1, 2016. In addition, relative to the first quarter of 2015, we increased our general marketing expenses to drive lead generation, grow our dealer and distributor networks, and deliver tools to the sales channel to support local marketing and sales lead generation. G&A expenses in Q1 were $4 million or 9% of revenue, compared to $3.8 million or 9% of revenue in Q4 of 2015, and compared to $3.5 million or 11% of revenue in Q1 of 2015. The Q1 year-over-year increase in absolute dollars is primarily due to increases in our salaries and wages and other administrative costs associated with running our business, including $200,000 in transition costs associated with the Pakedge integration. Our first quarter non-GAAP net income was $954,000 or $0.04 per diluted share, compared to a non-GAAP net loss of $1.2 million or a $0.05 per share loss per diluted share in the first quarter 2015. Our GAAP net income for the quarter was $6.6 million or $0.28 per diluted share. I want to highlight that during the first quarter of 2016 we recognized an income tax benefit of $10.1 million due primarily to Pakedge purchase accounting that resulted in the recognition of a $9.8 million deferred tax liability, and corresponding reversal of a portion of the valuation reserve on our net deferred tax assets. This had a favorable impact on our GAAP fully diluted earnings per share of $0.41. As of March 31, 2016, we had $47.9 million in unrestricted cash, cash equivalents, and net marketable securities, a decrease of $33.1 million from December 31, 2015. The overall decrease in cash and cash equivalents and net marketable securities was impacted by the following. We purchased Pakedge for $32.2 million in net cash and incurred approximately $300,000 in acquisition-related expenses, with an additional non-cash inventory step-up adjustment of $0.7 million. We established a $30 million credit line to fund strategic growth and borrowed $5 million during the quarter to help fund the Pakedge acquisition. During the first quarter of 2016, we purchased 233,815 shares of our stock for $1.7 million, bringing the total number of shares repurchased in 2015 and Q1 of 2016 to 1,388,295, for a cumulative price of $10.8 million. Our inventory increased by $12.4 million during the three months ended March 31, 2016, including $5.4 million in networking inventory associated with the Pakedge acquisition. And we invested $5.9 million in inventory to support growth initiatives, including the roll-out of our new EA series of controllers. Additionally, we established stocking inventory for our new facility in Melbourne, Australia, for direct-to-dealer fulfillment. And notwithstanding the acquisition of Pakedge and its accounts receivable, our total accounts receivable balance decreased from $21.3 million at December 31, 2015, to $20 million at the end of Q1. Our rolling worldwide six-month days sales outstanding, or DSO, was 42.9 days at the end of Q1 compared to 43.6 days on December 31, 2015. Earlier this year, our Board of Directors authorized an extension to our share repurchase program of up to $20 million of Control4 common stock during open trading windows, moving the original end date from May 13, 2016, to June 30, 2017. With cumulative share repurchases since May 2015 at approximately $10.8 million, we have $9.2 million remaining in authorized repurchase capacity. In parallel, we believe strategic acquisitions that are accretive to earnings are important, and we will continue to evaluate such opportunities. Our 2016 capital allocation decisions will continue to be governed by our desire to maintain flexibility to fund these types of strategic decisions. Turning now to our forward-looking guidance, our guidance includes the expected contributions from Pakedge. And because these networking products are complementary to our current business and will generally be sold through the same or similar channels, all results of operations and forward-looking guidance will be based on our consolidated single business segment. We are integrating the Pakedge business, which we anticipate will continue into the third quarter, resulting in improved operating margin in the second half of this year. We expect our revenue in Q2 to be between $49.3 million and $51.3 million, which points to a first-half 2016 revenue of between $92.3 million and $94.3 million, representing first-half year-over-year growth between 20% and 23%. We believe it is appropriate this year to consider the six-month comparisons because our Q1 2016 revenue outperformance was influenced by the EA series introduction, and the results in Q1 and Q2 of 2015 exhibited non-standard seasonality and timing. We expect our non-GAAP net income for Q2 2016 to be between $3.8 million and $4.8 million, or between $0.15 and $0.20 per fully diluted share. For full-year 2016, we are reiterating our annual guidance of $198 million to $202 million in revenue, and $16 million to $18 million of non-GAAP net income, or non-GAAP EPS of $0.67 to $0.76. We would now like to open the call for your questions. We think that Q1 was very strong. Its relative growth compared to last year's Q1, which was very suppressed, is a one-time situation. We feel good about the market acceptance, the dealer confidence in their local businesses, their confidence in our product line and the services we provide. And we're confident in the guidance that we provided at the beginning of the year, and what we are reiterating now. The feedback we are getting is that business activity to our dealers is strong; inbound interest is strong; and dealers are pretty together proposals. Our acquisition of Pakedge has certainly strengthened our product offering in the minds of the Control4 dealers. And we're continuing to support the Pakedge-only dealers fully, as first-class citizens, and we want their business and channel to grow also. And, <UNK>, I'd add that the two data points that we mentioned in the script, we're really pleased with the number of new dealers that we added in North America, which was the most in any quarter since 2013. And that gives us a lot of confidence in our guidance for the rest of the year. Also, we've seen, as <UNK> mentioned, rapid adoption amongst our Control4 channel, of our dealers selling Pakedge. We had over 370 dealers that bought those products in the first 12 weeks after the acquisition. So, a lot of positive reasons to believe that the momentum that we're seeing in Q1 will carry into future quarters. We don't share our goal numbers. However, as <UNK> pointed out, one of our key strategies is to expand our dealer coverage in those geographies where we see unserved opportunity. And we're doing so with goals per region. And we're adding very skilled, existing businesses with technical teams that can learn Control4 and become very confident quickly. We intend to do the same thing on the Pakedge and networking-only side, where there will be a networking channel that just provides intelligent home and small business networking. Thank you. Well, we thank everyone for attending our first quarter's earnings. We look forward to updating you again after we finish up Q2 and subsequent quarters. We are excited about getting started on 2016, Control4 with the Pakedge team and product line, and our advances with our software and our team. Thank you very much. Talk to you next time.

2016_CTRL

2015

GIII

GIII #The size of the deal is, yes, it's pretty consistent. That's our comfort zone, and that's not to say that we couldn't reach out further. But our comfort zone is between $0.5 billion to $1 billion level, also depending on the balance sheet that we would be acquiring. So the growth, or I guess your question is what is our strategy for some of the Jones space. We are in the middle of several situations, none of which have crossed the finish line. What we have a habit of doing is we look at several things simultaneously. As we all know, many pieces, or businesses, or opportunities fall away. So our strategy is not to take on more than we can handle, but to look at quite a bit, to be selective and make the best deal for ourselves and our shareholders. And we are near a couple of opportunities that are there for us, and whether they are licensed or acquisitions, our desire would be an acquisition. But that's not to say if an appropriate license was there, or a combination, if a partnership was there, we would concede our absolute wish which was to acquire brands and just take part of a brand or a license that's favorable to us. Thank you, <UNK>. Thank you. As I look at the two big pieces of the business, <UNK>, I would tell you that it's probably pretty comparable, both in terms of wholesale and retail. We're probably looking for a pretty similar increases in both sides of the business. In terms of operating margin improvement, we are forecasting some operating margin improvement, and I think that's going to also come from both the gross margin, slight improvements in both gross margin and the SG&A. When we think about the Bass business, we've got lots of room in terms of gross margin improvement, as well as SG&A leverage. A little less room in terms of improving the gross margin performance of our wholesale business. It did perform extremely strongly this past year. We're up in the high-single-digits in terms of operating margin improvement. So as sort of a recap of the whole thing, I think we will have balanced growth across the business and we'll see some nice improvements in terms of both gross margin, as well as SG&A. <UNK>, I think I'd like to add that we are all focused on what might be considered our new toy, and that would be Bass. What we're not focusing on is everything that's still left on the table for us at Calvin Klein. This brand, although it is our largest business, and one might look at it and say where are you going to go with this. The opportunity with Calvin Klein is endless. There's not a classification that we are not projecting good growth in for the coming year. Surprisingly, and I think I touched on it earlier, it doesn't necessarily have to be that there is another brand to replace Jones New York. There can be an existing brand that just has gotten so good and so broad at what they do, that they are able to garner a disproportionate amount of space and the amount of the budget that's out there for growth. The focus, again, as we described earlier on areas that seem to be matured, is better design ---+ design at Calvin Klein in each classification is best-in-class, dress designs are as good as they get. When you think you've reached the limit, you shop the next collection and you say, oh, my God, how did it get better. When you look at our bag business, all we need is more space. We have great product. Our battles today are trying to create more space to display all the great stuff that we do. Our suit business, we are doing amazingly well with it. We have, again, a solid design team. We have a fan base at retail that is supporting it and we clearly dominate that area. We brought that area back to life. Coats, there's not very much that I can say about coats that I haven't said. It's design, it's price, it's quality, it's cooperation from your vendor base. We have it all for Calvin Klein. If you were going to look at this Company, a big percentage of our growth is still available through further development of Calvin Klein. Globally, in its lifecycle, I think they've got a long way to go. This brand will survive and will prosper. There's nothing that one could guarantee about a hiccup. A hiccup might occur based on an environment, based on a change in management or design, but, and maybe it's just a little bit of time that cures it all. This is an amazing brand that's owned and operated by an amazing company. So our belief ---+ we are making a big bet that this brand is here forever. Hopefully, the team that's currently running it is there forever. They are highly competent. I guess I might be hearing your concern about the Warnaco piece that was acquired. That was acquired, it's just taking a little longer than expected to integrate the company. We've had those issues. We continue to have it. We over planned for Bass this fourth quarter, but we're fixing it. And the same goes for PVH. Thank you very much for hearing our story and I wish you a good day.

2015_GIII

2015

SYK

SYK #Well, thanks. First of all, just to clarify, the greater than 30% growth was aided by the acquisition of SBi, so on our organic basis, we grew around 20%. Still a very, very impressive number, given the multiple quarters of organic growth that had exceeded 30%, but we are really excited about the potential. We're still penetrating ---+ new markets are very exciting because they are hard to predict. You don't really know because you're continuing to penetrate the market where more and more implants are being used. Getting a total ankle, it was a huge move for us in the foot and ankle market. It was a big gap. That acquisition is really just starting to gain steam, so we still think we have plenty of growth ahead for our foot and ankle position. I would say we haven't seen any real change in volumes in the first quarter beyond the normal seasonality that we see. So nothing that has changed dramatically there. I think it's too early given what we got the clearance of the Stryker power brands on MAKO to point to that. As you've seen, we've had really good momentum there for a while and I think it's just the strength of the overall portfolio. Yes. So this is a continuation of the strength that we've had over time. Nothing that we would point to, although it's still early with ---+ the deals haven't closed and you typically see that disruption occur later in the integration process. Whether or not that translates into any share shifts, we're not assuming that. We're really well-positioned between our portfolio and the MAKO line and the underlying strength that we're seeing in foot and ankle. But I wouldn't point to any disruption that we're seeing of any significance at this time. Yes. It's too early. Certainly, if there is disruption, we'll be well-positioned to take advantage of it, but at this point, it's too early to see anything. Really, the overall value proposition of MAKO hasn't changed and it builds on improved patient benefits and clinical outcomes. And we think we're going to be uniquely enabled to be able to show procedural enhancements and improved patient experience and then improved patient satisfaction. We think, with this technology, the consistency and reproducibility of the surgery is really going to elevate and allow for greater standardization and better overall outcome. And then longer-term, hopefully a next-generation of implants that, regardless of surgeon skill, is simply not achievable today with traditional [planar cuts]. No, we haven't. And it's early. Obviously, we don't have the total knee and that's going to take time. Even when it gets approval, it's going to be a methodical and measured ramp-up as we train and educate. Clearly, MAKO is something we're very excited. The Ortho team is very excited about it. But if you really look at the history of Stryker, with all the different businesses and franchises we have, all rolling out products, it's much more a story about singles and doubles and the totality of all those products that drives the organic sales growth. It's very rarely any one single product that we would point to. While MAKO has the potential, obviously, to be a big driver, overall, it's the totality of that portfolio. Yes. Again it's going to be a very measured launch post-approval, and we're still in the we filed with the FDA stage. Then when we get the clearance, we're going to have to be very measured. We're going to have to train and educate to make sure the surgeon experience is appropriate. We don't want to mess this up. There's going to be upgrades that have to happen from a software standpoint. So it is something, as we've articulated in the past, it's going to be a number of quarters before we start to really see the trajectory that's indicative of us taking market share gains and nothing has changed with that expectation. What we saw in our due diligence is a range of people. There's the early adopters with any new technology. There's those who want to see more of an established clinical brand of implants, and that's what we're doing as we add the hip power brand, for example. And then there's those who want to wait and see more indications. So I'm sure there are surgeons out there who want a total knee before they are really going to be convinced to go the robotic route. That's just indicative of the various waves of technology adopters you see, both with a robot or any new technology. Your market estimates on a global basis for Trauma and Extremities are ballpark, and we're really pleased with the performance we're doing there. I don't think we want to get into that type of multi-year projections, in terms of the revenue potential. But clearly we're very pleased with the momentum we're seeing, the ability to consistently take market share. We think that's going to remain the case going forward. Yes. I would see this as we see with Neurotechnology, Sports Medicine, Trauma and Extremities, these are really growth businesses for Stryker and they have been for multiple quarters. In the years ahead, we're going to continue to focus on them. If you think about upper extremities, we're still a relatively small player in upper extremities, and for us, that's an exciting area for the next few years. There are established players. It's not like foot and ankle, which is a brand-new market, but for us there's plenty of room to grow in the upper extremities space. Even with some of the products we acquired through the SBi acquisitions, we think are well-positioned there. So for us it definitely has been a great business for the past multiple years and we continue to see that as an exciting growth business in the years ahead. It was clearly a big part of our booth presence and the focus and the excitement that we saw at AOS was around MAKO, which is great to see because it obviously reinforces our long-term conviction. We've been in the capital business for a long time with our MedSurg businesses and see a very similar pattern, where you have strong year-end capital sales as hospitals are looking to use up budgets and then the appropriate drop-off in the first quarter. So nothing about that sequential decline surprised us and it should really be reflected in expectations going forward. It's not always going to be perfectly aligned with what we saw this year, but it's pretty indicative of the pattern of capital sales. Yes. I'm not going to get into a lot of details, since we haven't yet launched the product. It will be launched probably in the next 6 or 12 months, sometime in that time frame. But what I could tell you is it's going to be integrated into the light source that we have and that will be a huge advantage versus having to purchase additional capital. So the product we feel very good about and it will integrate exactly right into our light source. It will be very convenient, and it will obviously be lower cost than having to purchase extra capital. It'll operate as you would expect. It will light up the [cholangio] ducts. You'll be able to see very clearly as you are doing your dissection that you won't be able to have any injury. So it's a safety play. We are very excited about it, but again, we haven't launched it yet and more details will become available as we get closer to the launch. Hey, <UNK>. Normal supply issues. There's nothing significant that we would call out that was of major concern, which is why we have visibility in terms of the supply returning around that. It related to our power tools. We should have that resolved to allow for a much stronger performance with respect to Instruments in the second half of the year. With MAKO, it will be largely resolved or will be resolved during the second quarter. Yes, but I would think about this more like a back order, and back orders happen in our industry a lot. So it's not like we're off the market, it's just that we don't have a the degree of supply that we normally have to be able to fully meet our customer orders. So that's why when I ---+ in my prepared remarks, I talked about this really be a delay. Back orders, what typically happens is you lose the sales for a period of time but you don't lose the sale to another company. The sale just gets delayed. And that's what we are experiencing in the instruments area, as well is in MAKO. I wouldn't go beyond this year. We're always going to be watching and watchful, but I'd say, for this year, at least thus far this year, we haven't seen any change whatsoever related to either trauma or our reconstructive division and don't expect to see much, at least over the course of this year. We're always going to keep an eye on it, but thus far, no change whatsoever. Yes. We obviously don't provide all the details by country. What I can tell you is Japan really did turn around in all of our divisions except for Reconstructive. So Reconstructive, given the surgeon relationships, does take a little longer to try to gain that business back, but I was very encouraged with Trauma, with Spine, as well as our MedSurg businesses. The ERP systems are all resolved. We are regaining share slowly, but I would expect that, certainly by the third quarter, we should be back to the same level of market share that we had in the past, so I'm really pleased with how the new Management has approached the challenge, like I say on Spine and Trauma, ahead of schedule. Recon is going to take a little bit longer. I would say there is a small components because we did the acquisition---+ CHG. Earlier in the year. Earlier in the year, but it's largely organic growth. Virtually all of it's organic growth. And it's very reflective of just the strength that we're seeing in the capital markets right now. We feel good about this because it's been several quarters of them really outperforming. How much of that is a shift of dollars out of IT priorities. It's very difficult to get that level of granularity. What we would say is we do feel good about the momentum that we're seeing in capital across the board, the supply issues notwithstanding, because clearly we were seeing the demand there. I wouldn't point to anything specific that we are seeing in that business. It was clipped modestly, as we mentioned, by the MAKO supply issues. But there's nothing major that we're seeing in the market or different on the competitive front. Obviously haven't seen everybody report so far but nothing that we would call out. To me it seems like a very stable market. Our performance is starting to improve and that's what I spoke about just earlier on the call, that our Management team and some of the products that we've launched in the MIS space, where historically, we had less presence in MIS, is starting to help us gain momentum, so it was modestly better in the first quarter and I would expect that trend to continue. Based on the numbers that <UNK> was talking about, we'd need maybe one-third of that level, maybe a little bit more to offset the dilution that's occurring at the same time from the share issuances. Probably ---+ it's just a few million. It's not much associated with that. Yes, it's pretty small. Okay. Thank you. Thank you all for joining our call. Our conference call for the second-quarter 2015 results will be held on July 23. Thank you.

2015_SYK

2016

SSTK

SSTK #On the API they are all different. Some of them are exclusive, some of them are not. They tend to stay with us for a long time when they integrate with us because it's a pretty deep partnership. But it's something we focus on. We have a team and we continue to build out. And as it relates to the growth in enterprise customers, it's coming equally from expansion of new customers as well as growth with existing customers. As they see the benefits of the platform, as we continue to enhance the platform, as we listen to their needs and solve their problems and workflow issues I think that will even become a greater amount of connectivity with our customers. We've just added music to our enterprise platform and so we're also rolling out editorial on our enterprise platform. And so therefore we only see future growth continuing and accelerating from here. Operator, we have time for one last question please. So we don't actually speak to specific growth of enterprise. But what we have said in the past where it is directionally and it's now approximately it's more than 25% of our overall revenue. And so that is certainly as <UNK> said important as we've grown the customers as well as the amount of business with each of those customers. As it relates to Red Bull Media and our deal with Penske Media that we closed in 2015, we haven't discussed specifics but in terms of what it does for our business I think a couple of things. It makes our platform, overall platform more desirable by customers. It attracts both other contributors and other players because they want to be part of that platform. We are an extremely customer-friendly organization and I think that that has historically differentiated us from some others. And so being able to provide this first-rate, high-quality content in real-time really puts us in a very good position with our customers. But once again it's not beneficial to break that out independent of any other the overall business. Thanks everybody for joining us today. We appreciate your time and if you have any follow-up questions please let us know. We're happy to answer them over the next couple of days. Thanks.

2016_SSTK

2015

EXPR

EXPR #From a productivity standpoint, our outlet stores are more productive. As we said before, they are 1.5 times more productive than our retail stores. Some of our other metrics ---+ the AUR of the outlet locations is about 20% to 25% lower than the AUR of the retail locations. But also, from an AUC standpoint, our AUC is about 20% lower. And therefore, when you look at the merchandise margin, the merchandise margin of the outlet locations is close to the overall merchandise margin of the retail locations. As you move down to the P&L from a B&O standpoint, the B&O of the outlet location is fairly attractive, given the rent profile. And from an SG&A standpoint, it is similar to the retail business. So overall, the margin for the outlets continues to be very favorable to us. Thank you. I think the number one thing is continuing to offer the best fashion that is available out there, and in a differentiated way. And continuing to offer our exclusive product and elevating our brand. I think that is the number one big opportunity for us. And we can continue to do that. And we have made big strides this year with several areas of inventory discipline. While we've made big strides, there's still more opportunity there, from holding more back in reserve, as <UNK> talked about a minute ago, to, while we have a good, pretty fast supply chain today, looking for opportunities to continue to increase the speed of the supply chain as well. So we think there is still big opportunity there, along with the growth in the outlet channel. In addition to that, we are moving all our deliveries ---+ relevant deliveries ---+ back to the West Coast now, as well. So that's also another opportunity for us. But the good news is, as <UNK> said, we are bucking the trend to some extent with traffic in-stores, which is a positive. And I think that a lot of that is driven by the brand work that we have done, along with the great product that we have in the store. Thanks, <UNK>. Well, what happened last year with the e-commerce business was, we had specific e-commerce-only promotions that we ran last year. And we made the decision this year to have a single view to the customer around promotional activity. Whether it be in stores or online, it should be the same customer experience, a consistent experience to the customer. So we pulled off some of the e-comm-only promotions that we had on last year. And that is what led to the 6% comp online in the third quarter. We believe this is absolutely the right thing to do, from the long-term health of the business, and that is should be able to help us overall long-term with the overall customer experience. <UNK>, look, the way we're working it here is, we are constantly looking at continuous improvements in every area of the business. And there are clearly opportunities still with our sourcing, for us to be able to get faster. I think some of the work that we have done over the last six to nine months has been magnificent, in terms of moving on speed. But there is more that we can do; there's always more that we can do. And we're clearly focused on that. Yes. Thank you very much. Thank you. This concludes our call for today. Thank you for joining us this morning, and for your ongoing interest in Express. Please accept my best wishes for the holiday season.

2015_EXPR

2015

BGFV

BGFV #Thank you Operator. Good afternoon everyone. Welcome to our 2015 second quarter conference call. Today we will review our financial results for the second quarter of fiscal 2015, and provide general updates on our business, as well as provide guidance for the third quarter. At the end of our remarks we will open the call for questions. I will now turn the call over to <UNK> to read our Safe Harbor statement. Thanks Steve. Except for statements of historical fact any remarks that we may make about our future expectations, plans, prospects, constitute forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in current and future periods to differ materially from forecasted results. These risks and uncertainties include those more fully described in our Annual Reports on Form 10, our quarterly reports on Form 10-Q, and our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statements that may be made from time to time by us or on our behalf. Thanks <UNK>. We are pleased to deliver improved sales and earnings growth for the second quarter, particularly given that we cycled against strong soccer related business generated by last year's men's World Cup, and continue to be challenged by the recreational and economic impacts of the ongoing drought in our core California markets. For the second quarter we rang the register to the tune of $240.4 million, up 4.0% from $231.2 million for the second quarter of fiscal 2014. Same store sales increased 1.7% for the period. In terms of how sales trended over the quarter, we comped positively in each of the months of April, May, and June, we experienced a low-single digit decrease in customer transactions, and a low mid-single digit increase in average sale during the period. From a product category standpoint, all of our major merchandise categories comped positively in the low-single digit range for the quarter, with [targets] being our best performing category, followed by footwear and then appeal. Although difficult to quantify we believe that sales were impacted by the drought that continues to take an economic and recreational toll on California. Additionally, as mentioned we experienced some impact from cycling sales generated by last year's World Cup. Merchandise margins decreased by 17 basis points for the period compared to the second quarter of last year. Now commenting on store openings, during the second quarter we opened three stores and closed one store. We opened new stores at Jurupa Valley in Carlsbad, California, and Woodburn, Oregon. We ended the quarter with 439 stores in operation. In the third quarter we currently plan to open one new store and close one store. For the 2015 full year, we now anticipate that we will open approximately eight to ten new stores, and close approximately six stores. We are opening fewer stores than previously anticipated, due to several deals being challenged by construction delays or landlord issues, and we continue to maintain a cautious approach for selecting the right new store opportunities for our business in the current retail environment. Now turning to current trends. We are currently comping just slightly negative for the third quarter to date. We think several factors have impacted sales for the start of the period. One is part of our continuing effort to redeploy and reduce our ad spend, we eliminated a mid-week print circular this year that we ran in the second week of July last year. Additionally, over the past few weeks we have faced some of the peak soccer sales numbers generated by last year's World Cup, and sales of summer related products have continued to be impacted by the drought in California. While the drought will continue to remainder of our sales summer season, the impact from World Cup will lessen significantly as we move into August. Despite the headwinds that have led to a relatively soft start to the quarter, we are encouraged by the strength we are experiencing across a number of product categories. We have a very strong promotional plan in place for the remainder of the quarter, and we believe that we're in a position to generate positive same store sales for the period. Now I'll turn the call over to <UNK>, who will provide more information about the quarter, as well speak to our balance sheet, cash flows, and provide third quarter guidance. Thanks, Steve. Our gross profit margin for the fiscal 2015 second quarter was 32.1% of sales, versus 32.7% of sales for the second quarter of fiscal 2014. The decrease in gross margin for the period reflected the 17 basis point decline in merchandise margins that Steve mentioned, as well as an increase in distribution and store occupancy costs as a percentage of sales. Our selling and administrative expense as a percentage of sales was 30.2% in the second quarter, down 60 basis points from 30.8% in the second quarter of fiscal 2014. On an absolute basis, SG&A expense increased 1.6 million year-over-year, primarily reflecting higher employee labor expense resulting from our increased store count, as well as $1.1 million in costs associated with the Company's proxy contest, partially offset by a reduction in advertising expense. As a reminder, SG&A expense for the second quarter of fiscal 2014 included a pretax noncash impairment charge of $0.8 million. Now looking at our bottom line, net income for the second quarter was $2.6 million, or $0.12 per diluted share, including $0.03 per diluted share of expenses associated with the proxy contest. This compares with the net income in the second quarter of fiscal 2014 of $2.5 million, or $0.11 per diluted share, including a noncash impairment charge of $0.02 per diluted share. Briefly reviewing our 2015 first half results, net sales increased to $484.0 million, from $462.4 million during the first six months of fiscal 2014. Same store sales increased 2.8% during the first half of fiscal 2015 versus the comparable period last year. Net income for the period was $4.9 million, or $0.22 per diluted share including $0.06 per diluted share of charges for a legal settlement, and expenses associated with the proxy contest. This compares to net income of $4.6 million, or $0.21 per diluted share, including $0.02 per diluted share of noncash impairment charges for the first half of last year. Turning to our balance sheet total merchandise inventory was $336.6 million at the end of the second quarter, up 3.6% from the prior year. On a per store basis, inventory was up 0.8% versus last year, and we feel good about our inventory as we move through the summer selling season. Looking at our capital spending, our CapEx excluding noncash acquisitions totaled $12.9 million for the first half of fiscal 2015, primarily reflecting expenditures for four new stores, existing store maintenance and enhancement, distribution center equipment, and computer hardware and software expenses, including investments related to a new point of sale system. We currently expect capital expenditures for fiscal 2015 excluding noncash acquisitions of approximately $26 million to $30 million, as we increase investment in our distribution center facilities to support overall growth. From a cash flow perspective our operating cash flow was a positive $8.5 million for the first half of fiscal 2015, compared to a negative $2.2 million for the same period last year. The increase in cash flow from operations primarily reflected decreased funding of prepaid expenses and accrued expenses. For the second quarter we continued to pay our quarterly cash dividend of $0.10 per share. Additionally, during the second quarter we repurchased 20,200 shares of our common stock, for a total expenditure of $0.3 million, raising our year-to-date repurchases to 96,273 shares of common stock, for a total expenditure of $1.2 million. As of the end of the second quarter, we had $5.9 million available for stock repurchases under our $20 million share repurchase program. Our long term debt at the end of the second quarter was $70.5 million, which compared to $68.2 million at the end of the second quarter last year, and $66.3 million at the end of fiscal 2014. Now let's spend a minute on our guidance. For this year's third quarter, we are projecting same store sales in the positive low-single digit range, and earnings per diluted share in the range of $0.28 to $0.34. Operator, we are now ready to turn the call back to you for questions. Hi, <UNK>. Yes. Certainly, for over the second quarter there was an impact to California, not sure it's a result of the drought. Also, weather relative to the rest of the chain was not particularly favorable in California, but there's no question that the California market, and some of the neighboring to some element, to some degree areas of Nevada are clearly affected by the drought, the lack of water in the lakes and the rivers. No question about that. No, I think the drought I mean, in terms of the lack of water and summer water recreation, that's clearly much more of a summer impact than what the fall and winter. The fall and winter months are going to be dependent on getting fresh snow and weather turning cold at the appropriate time. Yes, <UNK>. Just kind of walking through the forecast here, so you can kind of get from the top to the bottom, we are projecting a low single digit positive comp in the third quarter, and there is the different elements of softness in terms of the weather impact, the drought, and certainly the tailwind from last year's World Cup. But in addition to that, what we're seeing is our merchandise margins are forecast to be down somewhat in the third quarter, and as we hope to, as you mentioned, drive traffic and sales through some additional promotional activity, our occupancy and warehousing costs are also a little higher year-over-year due primarily to our store growth and our SG&A expense as we mentioned was up $1.6 million in the second quarter. We also anticipate it being up again in the third quarter, result of higher employee labor expense, due in part to the minimum wage pressure, as well as the added expense for new stores. <UNK>, just as an add on just to the California issue, I mean, on top of the drought we're also facing some pretty unique situations in terms of gas prices affecting the California market. I'm not sure how nationally publicized it is, but I think it's a national story, but the gas prices do in part to refinery issues in California have risen totally in a different direction than what's going on nationally and are significant, they're always higher, the disparity in California to the rest of the country is at near unprecedented, if not unprecedented levels. And that's also a pressure in our core California market. I mean, they certainly got to the point there, whereas they are below last year I think in most of the markets. They spiked 40% in California since the beginning of the year. It's really the largest spike since 2012. They appear, we are hopeful that they've stabilized and maybe even inching down, but it sort of depends on what day, or what week that you're talking about. But there's been some remarkable activity in terms of the gas prices in the state of California. Well, what we mentioned was just the promotional environment on margins, clearly is, we're pushing to drive some sales here in the third quarter, and that it is a promotional environment out there, so we do expect that to take a little bit of a toll. And then we do have higher expenses that are also impacting margins at a very low, at a low single digit comp positive, our leverage rate really from an expenses standpoint, is really at about a 2% to 3% comp. So we're expecting our rate to be, our leverage rate or our expenses as a percent of sales to be roughly consistent quarter-over-quarter, but we're not leveraging at a low-single digit comp. Well, I think I'm happy to say that after firearms and ammunition dominating so much of our discussion over the past several years, that the firearms and ammunition, firearm related products were really not a major driver of our sales in either direction for Q2, so they were reasonably consistent with the prior year. I suspect it still remains a volatile category. We'll have to see if that consistency was more coincidental or ongoing. Right now they're running relatively consistent with prior years, and really not driving the sales needle in either direction. I don't have that specific number at my fingertips, in terms of SKUs. We've certainly increased the number of products online over the course of the year that, this year when we've rolled out our eCommerce, but I'm not in a position to give you any precise number. I'd only be taking a bit of a guess. All right. Well, if there's no further questions, I thank you for your interest in Big 5 today and we look forward to speaking to you on our last call. Certainly. Well I'm not going to precisely quantify it. It was quite significant. I mean, the men's World Cup, started driving business, early in the year with apparel sales and then definitely became quite significant in the second quarter, as we led up to the actual World Cup competition. The final World Cup game I think was somewhere at the sort of the second week in July, and it continued as we mentioned to be significant, and it's probably a greater impact to the start of our third quarter just because of the influence in a relatively shorter period of time in the third quarter thus far. But the sales of like everyone else, licensed apparel, the balls and equipment, and I think the halo effect from the interest in soccer was reasonably material to our business. Yes, I mean again the category was running positively trending in but I would say somewhere, in the second quarter it could have been 40, 50, 60, 70 basis points, give or take, give or take. Well, it's diminished as we speak it's beginning to certainly significantly diminish in terms of the headwind, and certainly the specific sales related very specifically in terms of licensed apparel, that's way behind us now. I think again, as I call it the halo effect in terms of equipment, there definitely was a category has been very strong for several years, and it's certainly running today much stronger than what it was running, two, three, four years ago, but still trending behind what it was a year ago, and I think we have to go through a period to see this category normalize. But the true World Cup impact is certainly going to diminish week over week as we move away from the mid-July, actually comping against the final event a year ago. Sure. Well, this is something that's been ongoing, where we've on a calculated basis, strategically reduced the deployment of some of our print ads, trying to cut back, and in the case of what occurred in the second week of July, we eliminated we call it a midweek, called extracurricular circular that we ran last year. It has a larger impact, again when we make a change in our advertising in July. The impact for the period is going to be greater than what it will be for the entire quarter once we roll through the entire quarter. <UNK>, you might want to talk about the savings we've generated overall in terms of our ad spend. You've seen it come down. Our advertising has come down consistently over the last three, four, five years, and we continue to really evaluate the news print and scale that back strategically and opportunistically, looking at ROI and shifting some of those dollars to the digital spend, we're going to continue to do that. It's working for us. It dovetails nicely into obviously the eCommerce, and really just trying to reach perhaps a whole new customer with the digital advertising, and to be honest, obviously some of the distribution on the newspaper print is shrinking as well, so that is certainly helping us move in that direction. But by and large we're continuing to bring that overall expense number down, and we will continue to do that until we see some form of inflection point on sales. Well, I mean competition is not new to the California market. We've been facing, openings over a number of years in California, and I would say there wasn't anything material that changed from say, Q3 last year to Q4 last year, Q1 this year into Q2 this year, other than the drought, the drought and weather issues. I mean competition is not, openings are not a new phenomenon, and certainly we're experiencing that in California, but that hasn't changed. We've faced those for a lot of years. Ultimately we've always found that over time the competitive market rationalizes, and this is now our 60th year, and we've certainly established our ability to withstand new openings, and compete in the competitive environment. You're welcome. Thank you, <UNK>. All right. This time again I'll thank you for your interest and look forward to speaking to you on our next call. Have a great afternoon.

2015_BGFV

2015

VRA

VRA #Thank you. Good morning and welcome, everyone. We'd like to thank you for joining us today for Vera Bradley's third quarter earnings call. Some of the statements made on today's call during our prepared remarks and in response to your questions may constitute forward-looking statements based pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the Company's Form 10-K for fiscal year ended January 31, 2015, filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. The Company undertakes no obligation to update any information discussed on today's call. I will now turn the call over to Vera Bradley's, Chief Executive Officer, <UNK> <UNK>. Thank you, <UNK>. Good morning, everyone, and thank you for joining us on today's call. With me today are <UNK> <UNK>, our Chief Financial Officer, and <UNK> <UNK>, our Chief Merchandising Officer. We are pleased that better-than-expected revenue and gross profit percentage performance along with our disciplined expense management drove EPS of $0.27, which was well above both our guidance and the prior year. These results were achieved despite continuing headwinds in the retail environment, including increased promotional activity of certain retailers and overall weak mall traffic. We are especially pleased with our 540 basis point gross profit percentage improvement in the quarter. This increase was largely driven by various sourcing initiatives, the success of our made-for-outlet products, and reduced promotional activity. In our full-line stores and on verabradley.com, we eliminated our hyper-promotions of 60% to 70% off and pared back our total promotional days by approximately 50% during the quarter. Our better-than-expected revenues were generated despite this lower promotional activity. And for the second quarter in a row we have seen sequential improvement in our comparable sales trend which we believe is reflective of our new product offerings, improved in-store execution, and our initial marketing efforts. While our overall comparable sales fell 9.5%, our store comps declined just 2%. As expected, our e-commerce sales continued to be especially negatively impacted by our substantially reduced promotions. As I noticed, customers are responding to our new product offerings. For the second quarter in a row our direct comp sales trends were better than our traffic trends. We see indication that awareness of and affinity for our brand are increasing, and we are beginning to see new customers come into our brand and customer retention improve. We are also seeing continued enthusiasm and growth from our department store partners. We are making progress in gaining some traction, but we realize it will take more time and substantial effort to return the business to solid top-line growth. We believe we have the product, distribution, and marketing initiatives in place to achieve our fourth quarter financial plan and to continue improving our momentum into FY17. I will now ask <UNK> to give us a brief update on our third quarter results and outlook for the fourth quarter and full year. And then <UNK> and I will update you on the three pillars of our strategic plan, product, distribution, and marketing. <UNK>. Thanks, <UNK>, and good morning. Let me go over a few highlights for the quarter. Current year third quarter net revenues totaled $126.7 million, a 1.2% increase over $125.2 million last year and above our guidance of $120 million to $123 million. Income from continuing operations totaled $10.3 million, or $0.27 per diluted share, compared to $8.7 million or $0.21 per diluted share last year and above our $0.19 to $0.21 guidance. In our direct segment, revenues totaled $84.1 million, a 7.9% increase from $77.9 million last year. This revenue number reflects a comparable sales decline of 9.5%, more than offset by sales from new store growth. Indirect segment revenues decreased 10% to $42.5 million from $47.3 million in the prior year third quarter, primarily due to lower average order size from our specialty retail account and a modest year-over-year reduction in the total number of specialty accounts. Gross profit for the quarter totaled $73.3 million or 57.9% of net revenues compared to $65.8 million or 52.5% in the prior year. This rate improvement primarily related to sourcing efficiencies, increased sales penetration of higher margin made for outlet products, reduced promotional activity, and lower levels of liquidation sales. The gross profit percentage exceeded guidance of 56.8% to 57.2%, primarily due to reduced promotional activity relative to plan and better than planned sales of higher margin MFO product. SG&A expense totaled $57 million or 45% of net revenues in the current year third quarter compared to $53.3 million or 42.5% last year. As expected, SG&A dollars increased over the prior year primarily due to investments in new stores. SG&A as a percentage of net revenues was better than our guidance of 46.5% to 47% primarily due to better-than-expected revenues and expense management as well as a reallocation of planned marketing expenditures of approximately $1 million from the third quarter to the fourth quarter this year. Operating income totaled $16.8 million or 13.3% of net revenues in the current year third quarter compared to $13.6 million or 10.9% of net revenues in the prior year third quarter. By segment, direct operating income was $19.3 million or 22.9% of sales compared to $13.9 million or 17.8% of sales in the prior year. And indirect operating income was $19.1 million or 44.8% of sales compared to $19.2 million or 40.6% of sales in the prior year. Quarter end cash totaled $61.8 million compared to $90.3 million at the end of last year's third quarter, reflecting higher inventory levels as planned and share repurchases. Quarter end inventory was $118.2 million compared to $106.3 million at the end of last year's third quarter and at the high end of our guidance of $112 million to $118 million primarily due to timing of fourth quarter receipts. Now let's talk about our outlook for the fourth quarter and full FY16. Guidance for the fiscal year excludes the previously disclosed first quarter charges related to closing our domestic manufacturing facility, severance, restructuring, and the income tax adjustment. We believe we are approaching the fourth quarter realistically and taking into account continued headwinds in the handbag space, challenging mall traffic, a promotional environment, and other macro factors at play. We will continue to pull back on our own promotional levels. Year-over-year fourth quarter promotional days will be roughly the same, but we will continue to reduce our level of discounting. Of course this reduced promotional activity will continue to have a negative impact on sales, but this is the right course of action for the health of the brand and for our gross profit performance. For the fourth quarter we expect net revenues of $151 million to $155 million compared to prior year fourth quarter revenues of $152.6 million. We expect direct segment net revenues to increase in the low to mid single-digit percentage range with a comparable sales, including the web, decrease in the mid to high single-digit percentage range. We believe our indirect net revenues will decline in the high single-digit percentage range during the quarter. The gross profit percentage for the fourth quarter is expected to range from 58.3% to 58.7% compared to 52.4% in the prior year fourth quarter. The plan improvement reflects sourcing efficiencies, increased sales penetration of higher margin made for outlet product, reduced promotional activity, and lower levels of liquidation sales. SG&A as a percentage of net revenues is expected to range from 42% to 42.5% for the fourth quarter, compared to 35.8% in the prior year fourth quarter. The expected de-leverage is primarily due to incremental investments in key areas like marketing, e-commerce, and incentive comp, as well as fourth quarter asset impairment charge that's expected to be approximately $3 million versus approximately $0.5 million charge taken in the prior year fourth quarter. We expect fourth quarter diluted EPS to be in the range of $0.40 to $0.43. Diluted EPS totaled $0.43 in the prior year fourth quarter. We expect inventory to be $116 million to $120 million at the end of the fiscal year compared to $98.4 million at last year's fiscal year end. The projected inventory level reflects improved balance of current to retired inventory than in prior years as well as investments in key growth classifications, including new fabrications. Keep in mind that inventory was down nearly 30% last fiscal year in which in hindsight was too low. For the full year we expect net revenues of $499 million to $503 million compared to $509 million last year. Our revenue guidance includes direct segment net revenues growth of low to mid single-digit percentage increase with decline in comparable sales, including e-commerce, in the low double-digit percentage range. Indirect net revenues are expected to climb in the low double-digit percentage range. The gross profit percentage for FY16, excluding the charges outlined related to the first quarter, is expected to approximate 56.7% compared to 52.9% last year. The planned improvement reflects sourcing efficiencies, increased sales penetration of higher margin MFO product, reduced promotional activity, and lower levels of liquidation sales. SG&A as a percentage of net revenues, excluding the charges outlined for the first quarter, is expected to approximate 46.7% for FY16 compared to 41% last year. The planned increase is primarily related to incremental spending and marketing, e-commerce, and incentive compensation on a slightly lower sales base as well as fourth quarter asset impairment charges. We have adjusted our full year diluted EPS expectations upwards to $0.80 to $0.83, reflecting our third quarter performance. This estimate range excludes the previously mentioned first quarter charges. On a comparable basis, diluted EPS totaled $1.00 last year. We expect our net capital expenditures will total approximately $28 million for the full year, primarily related to new store openings, continued investment in our systems, and the spring 2015 completion of our corporate campus consolidation. This is modestly lower than the $31 million originally estimated due to the timing of certain expenditures delayed until FY17. As you know, we completed our $40 million share repurchase program in the third quarter. I wanted to make sure you're aware that yesterday our Board approved another share repurchase program authorizing up to $50 million in common stock repurchases. This program expires in 24 months. Let me turn the call over to <UNK> who will give us an update on product. <UNK>. Thanks, <UNK>. Let me take a minute to update you on distribution. We opened our final four full-line stores during the third quarter, which brings our total full-line openings this year to 15. And we opened three factory stores in the quarter, bringing the year-to-date total to 11. At the end of the third quarter we had 110 full-line stores and 40 factory outlet stores. Customers continue to offer positive feedback about our new full-line store design. Traffic continues to be challenging, however, particularly in the centers that house our full-line stores. We are certainly not alone in this dilemma. Our factory stores continue to perform well. Our MFO product transition is well ahead of plan, and customers are really responding to our narrowed and deeper SKU counts and channel-exclusive patterns. Currently, nearly 70% of our product in the factory stores is MFO. E-commerce remains a key part of our distribution strategy as we establish our digital flagship. Our long-term goal is that verabradley.com will convey our brand and product story and ultimately generate more full-priced selling. In order to do that, we have three main focus areas. Strategically paring back our hyper-promotional activity which began in January 2015, improving our website engagement features such as dramatically enhancing our search capabilities, which we completed in the second quarter of this year, and redesigning and converting our website to a new platform which will be complete in the fall of next year. As I previously mentioned, our reduced promotional activity is negatively affecting overall site traffic and sales but generating substantially improved gross profit percentage performance. Department stores are another key part of our distribution strategy, allowing to us introduce our brand to new customers and showcase our new product assortments. Our department store partners remain very supportive of our product and brand direction. In the past 18 months we have doubled our department store footprint to about 620 locations, which includes 250 Macy's stores. In late October we celebrated the official grand opening of our 400-square-foot shop on the new Millennial Floor at Macy's Herald Square; 100,000 people visit this location during the holiday season, so this is a terrific opportunity to get our products in front of thousands of new customers. In addition, just in time for the holidays LordandTaylor.com is now selling a limited selection of Vera Bradley products. We have also continued to expand our relationships with key accounts, such as QVC and Amazon, with a greater focus on our full-price business. Our door count in the indirect speciality gift channel is still about 2700. While the overall business continues to run behind last year we are seeing more stores return to positive sales performance, particularly at some of our larger multi-store accounts that have embraced our new product offerings and have improved their visual presentations. We are continuing to look for other appropriate specialty store relationships outside of the gift channel, such as local high-end apparel and accessory stores, and have added several of the doors to our distribution this year. Now let me shift to marketing. Marketing and brand building are critical investments as we engage new customers and strengthen our bond with our existing customers. Our primary marketing objectives are to generate brand awareness, evolve our brand perception, drive store and site visits, and inspire brand engagement. And as you know, we are investing substantially more in marketing this year than last year, and these efforts have just begun but have started to pay off. The IM campaign continued into the third quarter and our paid media delivered over 250 million impressions in the third quarter through a combination of print and digital media. In the IM ad, the product is the hero, which has resonated with customers. Our comprehensive and cohesive marketing plan consists of national print combined with richer content on social media, and an increased emphasis on public relations and more targeted digital media spend. We believe this combination will ensure we have both a broad yet targeted reach. Our key focus areas in the third quarter were back to school, fall fashion, and campus engagement. We continue to be encouraged by improvements in our social media metrics from the first quarter this year to the third. Total on-line media impressions continue to grow due to increased media spend as well as much higher Facebook, Instagram, and blogger engagement. In fact, both social media impressions and new followers substantially increase over this time frame. New products such as leather and Streeterville have gained editorial and media attention and have been featured in such publications as Elle, Teen Vogue, and O magazine. During the quarter we also introduced our campus ambassador program on five campuses, University of Georgia, Indiana University, University of Kansas, SMU, and USC. At each school, Vera Bradley is working with college ambassadors what are a personality fit for our brand and peer influencers who can increase our brand awareness and purchasing intent. The campus ambassador program goes hand in hand with the launch of our collegiate product. Our marketing efforts are not slowing down in the fourth quarter. We are continuing to build on our IM campaign and are excited about launching an updated campaign in the spring. We know it will take time but we are excited about our momentum in this important area. Operator, we will now open the call to questions. Absolutely. I think in the overall handbag market we are definitely seeing the consumer move towards smaller bags, as we've seen, in cross bodies and a lot of the smaller shapes. We definitely have seen that. We definitely have seen that the customer is looking for innovation. It is really an innovation game. So, innovation in fabrics, innovation in shapes is really what we see the customer responding to, but it is definitely competitive out there right now and the customer is definitely seeking newness. Sure. Remember, last year the Q3 was our best quarter from a web perspective. It was up 22%. So really as we've pulled down these promotional days in the third quarter pretty significantly, about 50%, we did see a pretty big impact on the web. Obviously it impacted the traffic which impacted the sales. As we look forward we continue to an impact in Q4 because we do plan on taking down the depth of the discount in Q4 more so than the number of days. We plan to be obviously competitive in Q4 with of some of our peers in competition out there, but nevertheless we're going to take down the depth of the promotions, so I still see some softness in the web in Q4. And then next year that should ease a little bit just because we've taken out call it 80% of the promotions this year and we'll take out another 20% next year, but we should see that ease next year. Thanks, <UNK>. I think 70% is definitely our target for the penetration and it will obviously go up and down depending upon various factors, but 70% is the target. And we do see that that obviously is a big impact into our margin in our factory stores and has been a great driver not only in margin but even from a sales standpoint. So it is definitely been a major factor in our turnaround of our factory business. And then, <UNK>, specific to margin, it helped our margin this year for the full year. It will help it by over 100 bays points, so definitely on a consolidated level, so definitely a huge help this year. And then as you project out to next year because we started the year around 25%, we'll end the year around 70%, we'll still get a little bit of a pickup next year in margin as it relates specifically to MFO as well. So it has been a huge success. The team has done a wonderful job. As we look at the long term we do believe that there's still an opportunity for the 300 full-line stores and about 100 of our factory stores. So, I think the long-term plan is still in place but we are definitely taking a slower approach next year. We've discussed opening up to 10 total stores between our factory and full-line business which obviously is a significant slowdown from where we were this year. And we're doing that and working on our full-line store performance and improving the comps and working through ways of dealing with the declining mall traffic. But we feel that that really is a slowdown for the next year or so, but we do believe in the long-term target still. Thank you, <UNK>. Thank you for the question. No, we feel good that the marketing campaign is definitely starting to move us in the right direction. We're seeing more new customers come into the brand. We're seeing retention improve. We're seeing our social metrics go up. So we feel that we're off to a very good start. We do believe as Theresa has come in she has continued to look at the plan, and we're looking forward in terms of how the campaign continues to evolve and become even more impactful as we go into next year, but we do feel very good about how it started so far. Thanks, <UNK>. Operator, thank you. As I reflect back on the last three quarters, I am really pleased with all of the progress our talented team has made on our key initiatives. Innovating and adding newness to our product assortment, substantially enhancing our gross profit percentage, growing our store base, rolling out MFO to our factory stores, expanding our department store relationships, and ramping up our marketing efforts just to name a few. Although it will take time for all of these efforts to fully pay off, I am confident that we are taking the right steps for the future of the business. Thank you for joining us today and for your interest, time, and questions. We look forward to speaking to you on our year-end call on March 9.

2015_VRA

2016

K

K #Specifically regarding the changes in snacks, the change was designed to separate sales and merchandising functions within the sales force, to enable better focus and execution between setting up and merchandising. It's as simple as that. It does come a top of previous investments we've made in our DSD specifically sales force in terms of technology, which obviously will unlock some of the benefits of technology as we do this as well. So it's separate from anything we've done in morning foods and feet on the street but it is a continuation of building more effective and efficient working practices within our DSD sales organization. Obviously any disruptive change is disruptive. So when you touch as many salespeople, merchandisers in the context of customers, there is some disruption. So many people find themselves in new roles calling on new stores. We anticipated that. We've seen a bit more on the incremental side in terms of display, especially on cookies and crackers. We're largely through that now as we come into the month of May and so we expect things to pick up from here. It's interesting. I meet with a lot of customers. I haven't met a customer yet who doesn't want to engage with big brands to drive growth. I think our focus across all of our categories is very much on building winning plans or our customers. The bigger the idea, the better you execute it, the more impact you will have in store. I think specifically to Kellogg, there's a little bit of timing in the cereal business where we were very strong last year in March, April because of the Avengers promotion. Our big idea this year is the Finding Dory movie which launches in June. So there's a little bit of timing in there but we feel very good about the quality of our plans, our brand communication and our innovation ideas as they come to market here. Morning, <UNK>. In the quarter we ---+ in terms of gross margins or operating margins. If you've seen the reported data, the snacks business did pretty well on operating profit through the first quarter. So there's no real near-term impact on margins. There was some sales disruption as I said when it comes to our performance on display at the top line. We are hopefully through that and we move forward. We expect this to be a more effective and more efficient way of operating going forward. No, there's no cost addition to this at all. In fact, it will be more efficient and effective going forward. If you look at the Kashi business over the last 18 months or so now ---+ at least 15 months, we continue to see sequential improvement in the performance of the business. As you are aware, we put the team back in California just over a year ago. We are seeing especially our cereal business perform a lot better. Share was flat in the first quarter, we're actually growing the business now in the natural channel. The team has been really working hard at building a pipeline of ideas to get back ahead in terms of a food-focused mission-based operation. So we have new Kashi and Bear Naked cereals launching here now. We have savory granola bars launching at the end of the second quarter. We have some culturally inspired crackers that I've spoke about before. We have granola bites coming from Bear Naked at the turn of the quarter as well in the third quarter. And we have a brand-new range which is shipping now, of Kashi Go Lean and Kashi branded protein powders to lean into new segments with the brand. Of note, our Bear Naked granola business is growing at a good mid-single to high single-digit click. So the granola business in Bear Naked does well. While more part of the Kashi company is stretch out in fruit snacks, a very small business we don't to talk a lot about. But that's growing at a strong double-digit rate as well. We've reinvented that food, made it all organic, invested back in the food there as well. So there's been a lot of reinvestment in food to renovate. And now a lot of innovation about to come which gives us the confidence that we're going to get this business back to growth over the coming months in 2016 and into 2017. Sure, Rob. I think if you come back and look the US business over the last couple of years, we said there were two big brands in the US that we needed to fix. One was Special K, one was Kashi. In both cases where we've put on-trend food in the marketplace, we've seen consumers respond to that very positively. We've seen those results come through in the US results last year and into this year. Same is true in Canada. As I said in the prepared remarks, in Australia, we are also seeing significantly improved results through first quarter on the back of improved food that's more on trend with what consumers are looking for. The same will be true in the UK. We have four large cereal markets US, Canada, Australia and the UK. The UK is the last one for us to turn. We believe, again, putting the right food in the marketplace for consumers is going to make the difference. The Ancient Legends food that we had at Day at K is more of a granola, great taste, visible nutrition type food, as is the Special K Nourish food that's been an important part of the Special K turnaround in the US. And the Special K Red Berries renovation in the US we'll also have going into the UK market as well. A lot of those food changes, though, got cut into the shelf in the later part of Q1. So we do expect to see the business respond to that. I don't necessarily expect to see the European cereal business get back to growth in this year. But in many respects that cereal weakness in Europe is masking some very strong growth in other parts of the European business. When we have Pringles up high single-digits and wholesome stacks up high single-digits, we clearly have the ability to execute if we have great food in the marketplace. We have great food behind cereal. I have confidence we will see our European top-line trends improve as we go through this year. Rob, it's <UNK>. Obviously turning around wholesome, as you said, is going to take a bit of time. It does mean a focus on food and a focus on core brands. Rice Krispies Treats is a great brand that plays in a certain segment within wholesome snacks and has been doing very well and it's a question of fueling its growth. Those things fit. When you come across the Nutri-Grain, looking forward on Nutri-Grain, it's really reinvesting in the core soft-baked bars. We have two initiatives coming, one a pumpkin spice initiative, another one with chocolate and raspberry which is very close in to what Nutri-Grain stands for. Beyond that, if you lean towards the healthier elements, if you like, perceived elements of wholesome snacks, we've already renovated many of our base Special K bars. And since those renovations, they are doing better. We are now bringing protein trail mix bars to Special K. And then the one or two brands that really I think need to step up and step in here to broaden out our portfolio and our growth, are actually coming Kashi and Bear Naked. Because they really have been absent over the last two or three years and therefore we are renovating our core Kashi granola bars. We're bringing new-to-the-world savory bars on Kashi. We're bringing new granola bites from Bear Naked as we go into the end of the end of the second quarter here. You will see more innovation coming on bars from Kashi and Bear Naked in that, what I would call, lifestyle performance area of wholesome snacks. You have to look at the whole picture to think about how we innovate and renovate across every segment. Again, the turn is not going to come overnight but we've spent a lot of time with a lot of customers talking about our view for the future. There's a lot of encouragement coming about how our portfolio can play to win as we look forward. I'm not sure the data you're looking at, <UNK>. Special K was up about 3% and gained 30 basis points of share. The Red Berries initiative, that part of that portfolio is still growing at north of 5%. The brand is growing. There may be some timing of activity year on year where we launched Red Berries, so you may see something in the near-in data that might look strange. But the underlying trends, as we see them, and now with Nourish just gearing up, we have some great seasonal items coming in Q3 as well on Special K. We think the brand is back on its stride. I don't think it's going to be growing double-digit year in, year out but it should be contributor to growth across our core portfolio going forward. So we feel good that we've got it growing. I mentioned in Canada we've done something similar. The Canadian business is ticking up as well. So when we think core six brands and growing across our major customers, K is a huge component part of that. We are happy with the progress we have made. A comment on the macro-level. I think when the category was soft ---+ and this is true for all of the large markets ---+ it really had to do with some of the adult brands not doing well. Now the adult brands are doing much better with Kashi coming back, with Special K, even a brand like Raisin Bran doing a lot better. And bringing adults back into the category and driving adult consumption, I think, is what happened across the 2000 and helped drive category then. That's our focus as we drove forward here. <UNK>, it's <UNK>. We're confident in $100 million. There is no doubt about that. We're still on track within North America to deliver against that. As I mentioned on our fourth-quarter call, our international regions would start progressing their zero-based budgeting initiatives early in the year. They have done so. They are identifying targets, assessing the spend ---+ discretionary spend ---+ across similar categories as to what we did in North America. That is progressing extremely well. We do expect to see a little bit of savings from the international regions in 2016 but most of that will come into 2017. North America, by the way also, in the first quarter was on plan. We had embedded the zero-based budget savings into their plan and they were on or slightly above plan, frankly. So we're in good shape on the program. On zero-based budgeting, it both delivers savings but it also provides a great tool and mechanism to challenge historical assumptions and to challenge some areas where some investment was happening were not getting a return. And we would turn money to areas where we are getting good returns. It's not always just the savings that comes out of it so much as the underlying methodology and driving and pushing on key assumptions. Thank you. Good morning, <UNK>. <UNK>, first on the category and channel mix. Across the business we are seeing a little bit more adverse mix as a result of some of our big developed cereal markets and the trends in those business. As <UNK> mentioned, the transition that we're doing in the US snacks, a very profitable business for us, both from a gross margin standpoint and profitability standpoint. So as we go through that transition sales were down a little bit more than we had expected. That had an adverse impact on our mix. As we're growing in some of our emerging markets, we're seeing a little bit adverse impact in mix. As I said in the prepared remarks, we expect this to improve as we progress through the course of the year and we build momentum on our sales outlook. <UNK>, <UNK>. On the question about space in-store and retailers. We are not seeing anything at a macro-level but different retailers obviously have different strategies as to how they manage the categories. We have seen in instances, for example, number of sizes reduced in certain retailers. But we've also seen an increase in space for natural and organic which has benefited obviously brands like Kashi for us. I think it really is a question of always looking to maximize assortment. We spend a lot of our time trying to maximize assortment holding power behind the fastest-moving biggest items. For me it's very much a question about sales fundamentals. And back to this notion of customers want big brands to grow, we need bigger better ideas to help them grow. So nothing at a macro-level but every retailer is different in terms of their strategy. Thanks, <UNK>. Good morning, <UNK>. First, in terms of the cost savings that we are seeing, zero-based budgeting and Project K as well, it's spread relatively evenly over the course of the year. We saw savings within the first quarter and we will see savings as we progress through the year well. In terms of Venezuela, as I mentioned, we did this remeasurement at the middle of 2015 so we will be past that after the second quarter. We do expect our sales trends to improve and as those sales trends improve, that will improve our profitability performance. Remember, we guided 4% to 6% operating profit growth on our ex-Venezuela business. We delivered 2% in the first quarter. As you would expect, we'll see more growth going through the balance of the year. I was going to turn to your Latin American question there for second, and margins in Latin America. As you look across the Company, you can see it's investing back in the emerging markets. Asia-Pacific and Latin America, we're not looking for as much, say, margin expansion as we are from North America and Europe. Within Latin America within 2016, it's fair to say that we're seeing a little bit more economic softness a little bit more challenges in the southern part of Latin America than what we would have liked to have seen. We do expect to see an operating profit growth on a comparable basis ex Venezuela in the region. But probably more low single-digits in sales growth in the same range, again, ex Venezuela, reflecting the difficulty in the marketplace. <UNK>, as we discussed at Day at K and at CAGNY, we are committed to expanding our operating margins over time. We have set a goal of 17% to 18% operating margin by 2020. Clearly we look very closely at what other companies are doing, our peer group and our competitors. One of the core values of the Kellogg Company is that we have the humility and hunger to learn. We will look very closely what's happening at Kraft Heinz and all the other companies in the industry. If we see opportunities to improve the economics of our business and to drive shareholder value creation, we will certainly pursue those. Gary, this is <UNK>, I think we've got time for one last question please. <UNK>, you're thinking about it correctly. When we started the year on the fourth-quarter call, I said expect our comparable earnings per share, and that includes the impact currency, to be spread relatively evenly across the four quarters of the year. We did deliver a little bit more in the first quarter and we said that might come out of the second quarter. And some of that is related to the timing of investments and activations that we're doing against our commercial programs and our innovations as we move into the second quarter. So expect the second quarter to be little bit lower than the average of the four quarters now. You're welcome. Thank you all for your questions and interest in the Kellogg Company. At this time I'd like to share with you the news that <UNK> <UNK>, our Chief Financial Officer for the past seven years, has decided to retire after 30 great years with the Company. <UNK> has been a key member of our leadership team, combining a strong business acumen with a disciplined approach to finance. I'm sure you all have enjoyed working with <UNK> as much as I have. It may not surprising that <UNK> will be retiring in a very careful deliberate way. He will remain the Company's CFO through the end of 2016. This will give us proper time to do a thorough search, both internally and externally, for his successor. <UNK> will also stay on into 2017 to ensure an orderly and effective transition so we will have good continuity. Please join me in congratulating <UNK> on a wonderful career and in thanking him for his outstanding service. That wraps up our call. Thank you and have a great day.

2016_K

2017

WBA

WBA #Thank you, <UNK> Our performance this quarter was in line with our expectations despite challenging conditions in a number of our markets We were particularly pleased with growth in U.S pharmacy volume and market share as the early benefits of our new pharmacy contracts started to come through We continue to work hard to secure regulatory clearance for the Rite Aid transaction and we are reiterating our guidance for fiscal 2017. So now let's look at the financial highlights for the quarter As we expected, currency again had a negative impact, the U.S dollar being around 16% higher versus sterling than in the comparable quarter last year Sales for the quarter were $29.4 billion down 2.4% versus the comparable quarter On a constant currency basis, sales were up 0.9% Without the extra day in February last year, this would have been up 2.2% GAAP operating income was $1.5 billion, a decrease of 20.5% GAAP net earnings attributable to Walgreens Boots Alliance were $1.1 billion up 14% and diluted EPS was $0.98 up 15.3% Adjusted operating income was $2 billion down 4.9% and constant currency was down 2.7% We estimate this would have been broadly flat taking into account the leap year impact Adjusted net earnings attributable to Walgreens Boots Alliance were $1.5 billion, up 3.7% and in constant currency up 6.2% Adjusted diluted net earnings per share was $1.36 up 3.8% and in constant currency up 6.1% The adjusted effective tax rate which we calculate excluding the equity income from AmerisourceBergen was 23.7% This was lower than in the same quarter last year primarily due to reduced estimated annual tax rate associated with our current year pretax earnings, an incremental discrete tax benefits Year-to-date the tax rate on the same basis was 24.5% For completeness, here are the numbers for the first half of fiscal 2017. I will not go through this in great detail but you will note that GAAP diluted net earnings per share was $1.94 up 3.7% versus the same period a year ago Adjusted diluted net earnings per share was $2.46 up 5.1% and up 7.7% on a constant currency basis So let me now turn to the performance of our divisions in the quarter beginning with Retail Pharmacy USA Retail Pharmacy USA sales were $21.8 billion, up 1.5% over the year ago quarter, comparable store sales increasing by 2.4% As 2016 was the leap year, when we calculate comparable sales and prescription figures, we exclude the 29 February, 2016. Adjusted gross profit was $5.9 billion down 0.6% over the year ago quarter with the impact of the extra day in 2016 holding back growth and adjusted gross profit by over 1% Lower retail gross profit was partially offset by an increase in pharmacy Adjusted SG&A was 20% of sales, an improvement of 0.1 percentage points compared to the year ago quarter Adjusted SG&A as a percentage of sales was improved versus comparable quarters for 15 consecutive quarters As a result of the lower adjusted gross margin, adjusted operating margin was down 0.5 percentage points of 7.1% resulting in adjusted operating income of $1.6 billion down 4.9% So now let's look in more detail at Pharmacy U.S Pharmacy total sales were up 3.7% mainly driven by increased retail script volume We filled 246.7 million prescriptions on a 30-day adjusted basis including immunizations, an increase of 5.9% On a comparable basis for stores which excludes central specialty, pharmacy sales increased by 4.2% with scripts filled up 7.9% This was the highest quarterly growth rate in more than seven years and was primarily due to strong volume growth from Medicare Part D and strategic pharmacy partnerships which we announced last year We are pleased both with the progress of Medicare Part D an early indications of the benefits derived from our new pharmacy contracts Within sales volume growth and brand inflation was partially offset by reimbursement pressure which was in line with what we had anticipated and by the impact of generics Our reported market share of retail prescriptions in the quarter on the usual 30-day adjusted basis was 20.4%, up approximately 100 basis points over the year ago quarter Total retail sales were down 2.7% on the same quarter last year This includes the impact of previously announced closure of certain e-commerce operations and the impact of the leap day in the prior year <UNK>omparable retail sales were down 0.8% in the quarter and what was a challenging environment The claims in the consumables and general merchandize and personal care categories partially offset by solid growth in the health and wellness and beauty categories Adjusted gross profit was lower than in the same quarter last year primarily due to the decline in sales Despite the difficult market conditions, we were pleased with growth in our key categories This was reflected by our absolute performance, as well as recent market share gains Based on the latest Nielsen data for the 13 weeks ended 25 February, we gain share in the health and wellness, beauty and personal care categories However, we know there is more to do and after taking further actions to help drive future performance These include simplifying our product offering, further emphasis on our omni-channel capabilities, and expansion of our beauty differentiation program While still early in the journey, our own brands are performing well and currently represent over 15% beauty sales in our beauty differentiation stores We have now recruited beauty advisors across more than 1800 stores which is helping to drive No7 sales and gross profit Repurchase levels of No7 products are been very encouraging and Soap & Glory has also got off to a good start Following the successful introduction of No7 and Soap & Glory, we are planning to introduce another of our own brands Botanics, into our existing beauty differentiation stores in the next six months Looking ahead we are now developing plans to introduce our enhanced beauty offering to over 1,000 additional stores by the end of the calendar year So next, let's look at the progress of our cost transformation program In our previously announced cost transformation program, we set ourselves an ambitious target of delivering $1.5 billion in savings by the end of fiscal 2017. I'm delighted to announce that we achieved this target ahead of plan We now expect that the cumulative pretax charges associated with this program will be approximately $1.8 billion This is in line with our expectations with an expanded program was announced in April 2015. These costs are higher than we anticipated in October primarily as we now expect to close around 60 more stores The program will be completed as expected by the end of fiscal 2017 and the full benefits will be realized in future periods We continue to expect but approximately 60% of the program costs will be in cash over time, the principle items being future lease obligations So now let's look at the results of the retail pharmacy international division Sales for the division were $3.1 billion, down 1.9% in constant currency again impacted by the leap year <UNK>omparable store sales decreased 0.9% in constant currency <UNK>omparable pharmacy sales were down 3.7% on a constant currency basis due to decline in the U.K which is partially offset by growth in other markets comparable pharmacy sales were down 5.2% mainly due to the reduction in government pharmacy funding <UNK>omparable retail sales for the division increased 0.6% reflecting Boots growth in the U.K , Republic of Ireland, and Thailand Within the U.K Boots comparable retail sales increased 0.7% versus the year ago quarter supported by solid December trading Adjusted gross profit for the division was down 4% in constant currency to $1.2 billion mainly due to lower pharmacy margins in the U.K reflecting the reduction in funding and the impact of the leap year - leap day in the prior year Adjusted SG&A in constant currency dollars was flat versus the year ago quarter However adjusted SG&A as a percentage of sales on a constant currency basis was 0.6 percentage points higher of 31% as a result of the largely fixed cost elements of the cost base Adjusted operating margin was 7.8% and 1.4 percentage points in constant currency This resulted in adjusted operating income of $242 million, a decrease of 16.7% again in constant currency So now let's look at our pharmaceutical wholesale division Sales for the division were $5 billion up 0.6% versus the same quarter last year on a constant currency basis Growth was held back by the sale of Alliance Healthcare Russia in March last year and also by the leap year <UNK>omparable sales on a constant currency basis were up 5.2% This was behind the <UNK>ompany's estimate of market growth weighted on the basis of country wholesale sales With challenging market conditions in <UNK>ontinental Europe partially offset by growth in emerging markets and the U.K Market growth is particularly strong in certain emerging markets due to the timing of price increases Adjusted operating margin which excludes AB<UNK> was 2.9% up 0.2 percentage points on a constant currency basis Adjusted operating income was $226 million up 59.4% in constant currency Excluding the $79 million and adjusted earnings from AB<UNK>, adjusted operating income was up 8.4% in constant currency reflecting procurement and cost benefits Operating cash flow in the quarter was $2.9 billion During the quarter, our working capital inflow was $1.4 billion This reflected our seasonal reduction in inventories, as well as an improved receivables position <UNK>ash capital expenditure in the quarter was $261 million This was lower than in the first quarter mainly due to phasing As I said last quarter, we continue to invest in our core customer proposition including our stores and U.S beauty program, as well as the upgrades to our IT systems which we have previously talked about This resulted in free cash flow for the quarter of $2.6 billion Today, we announced a new share repurchase program of up to $1 billion in this calendar year with the flexibility to do this due to the changes to the pending Rite Aid transaction announced in January So turning next to our guidance for fiscal 2017, we have maintained guidance and continue to expect adjusted diluted net earnings per share to be in the range of $4.90 to $5.08. Remember our guidance assumes current exchange rates remaining constant for the rest of the fiscal year and no material accretion from Rite Aid or from the new strategic alliance with Prime announced on Monday So I’ll now hand over to <UNK> for his concluding comments I mean on the particular program that we talked about today we obviously are very pleased to have achieved our target the program will conclude as we previously announced – around the end of this fiscal year Some of the benefits of that will obviously – it will continue to see and see more of in the coming years Given that nevertheless looking for opportunities to drive efficiency in our sort of businesses is just a way of life So we will absolutely continue to look for opportunities year after year They will come in different places they may be in different geographies, but there are always opportunities to drive efficiency And so it's just a never ending we’ll continue this program will finish, but we’ll continue to look for more opportunities I think really it always looks at the year-to-date effective tax rate and if you look at that from an adjusted basis as I said that was around 24.5% So I think tax obviously you know mix can change quarter-by-quarter but looking at year-to-date I think it’s perhaps the best way of thinking about this discrete items of course the timing of those, there was a little bit uncertain and they can go up or down but think of the year-to-date I mean obviously we haven’t given specific guidance by segment we had first provide by reiterating our overall guidance figures I mean in terms of thinking about sort of the modeling There is going to be a number of factors that you've got to think about and firstly we will we are consolidating the new Prime deal from Monday when we completed it You need to think about that in factoring the U.S model recognizing obviously that is a specialty on mail business with different dynamics In terms of the international businesses, I think as we've said in the prepared remarks there is still the challenge in the U.K with the NHS having cut the reimbursement that will continue the basis has performed robustly as we said over key customer period But retailing is still itself quite challenging particularly in the U.K which is our largest market And then on wholesale sales, wholesale always a its kind of business or division that operates in a number of markets you can always get certain mix affect quarter-by-quarter So it's tough to model I know quarter-by-quarter but I did point out in the prepared remarks that in certain of the emerging markets we had some growth really in the period when you get price changes in the market where people tend to buy ahead of customers buy ahead of the price change and that was the notable impact in the second quarter Well just on the accounting side I mean we will account for it on a fully consolidated basis So when you're looking at our of sales, our adjusted operating income then you will obviously see a 100% of the entities results coming through, but then when you're actually looking at an earnings attributable to our shareholders to the WBA shareholders, we strip out and align the proportion that is attributable to Prime itself and I think as we said we own just over 50% of the business So when you thinking of EPS then it will be our share if you thinking of operating it's a 100% also in the accounting books Anything that goes through the venture that the new combined venture as to say we show a 100% in revenue 100% in adjusted operating income but then we strip as I say at the lower end of the P&L that the Prime share So when we are looking at adjusted earnings attributable to Walgreens Boots Alliance staffs got their share netted out

2017_WBA

2016

SFM

SFM #Two or three questions in there. One thing just clarification. When you say center store are you talking about Sprouts center store. How are you thinking about center store, make sure we answer what you're looking for there. Got it. Our center store is obviously produce and bulk so in terms, you want to jump in on the grocery side. As far as the nonperishable environment we look at it's relatively neutral slightly inflationary, zero to 1%. On the deflation side it's the items we just talked about, protein, dairy and bulk as you look forward obviously protein becomes more inflationary. Does that answer your question, <UNK>. <UNK>, if you look at protein I think what you're asking is there any comp risk in protein if people become I guess you would say a little bit more promotional. I think we've hit the bottom. We've actually start to see people from a retail perspective and promotional retail perspective over the course of the last two to three weeks start to move up as we start to see categories like pork and poultry inch up on a cost basis. So we've already started to see some retails change from a promotional perspective on the protein side. So I don't see any downside risk on the retail side in protein. Yes. <UNK>, overall we have a pretty robust process to track all competitors and what we call competitive intrusions when they open up near us and we actually have a plan ahead of them opening and post. As far as Aldi is concerned, what we've seen is we've had a number of stores open within a two mile radius of Sprouts and it appears to be a pretty different concept and a very different customer. And we've tracked it very closely and we've not seen any impact from those openings to date and we will continue to monitor that just like we do for all competitors. Yes. So I'll answer the last question first. From a weather perspective, overall comp impact was roughly 30 basis points and the majority of that was in P3. In specific markets that were impacted were Colorado, Texas, and Oklahoma. With regards to your first question, around nonperishable performance and the conventionals and expanded assortment, we anticipate the conventionals to continue to expand their assortment. The natural organic industry continues to grow at roughly a 10% pace, I think last year it was 9%, projected 10% for the next three to five years. We're anticipating that and you can look at the syndicated data as well. We continue to outpace all food channels in terms of our overall performance and that's on the top-line and that's in all the major attribute categories when you look at non-GMO, or gluten-free, or organics, or vegan. So I feel extremely confident that we're on the leading edge of not only product development innovation, but promotional innovation as well. So I think we're in a really good position. Thank you, <UNK>. Yes. That's a great question. In context as I've mentioned is traffic if you look at fourth quarter versus first quarter, obviously the holiday season is a big part of it. But specifically in the first quarter the weather in Colorado and Texas and Oklahoma, <UNK> talked about impacted traffic for the back half of the quarter. And then second also in the back of the quarter we're hurtling the fresh produce season. We hurdled the fresh produce season from last year where there was a plethora of produce coming into the market and we were able to promote it heavily. So as we're sitting here today we are continuing to see good momentum across the chain in traffic. I think the back half of the quarter were a couple of more specific anomalies in my mind and we're pretty pleased with what we're seeing in the current environment. And then that combined with the momentum in a number of initiatives that we've talked about that are really just starting to come to fruition is we feel good on how that's going to bear fruit into our traffic as well as overall comps. And as you look at weather and why it impacts us, our drawing power because our mousetrap is so unique has an ability to draw from five to seven miles away. And when you severe weather in market places consumers have a tendency to shop more conveniently. And so when that happens we traditionally will lose some of the ad shoppers that would be driven into our produce and meat departments. As we alluded to in the nonperishable performance, obviously we've seen a slight mix change it's not material enough to discuss and it's not greatly impacting our overall gross margin. But we're starting to see positive mix change relative to movement toward nonperishable's and higher grossing categories. No. I think the only thing more unique to Sprouts ---+ so from a broad industry perspective I think the deflation piece is clearly impacting the overall comps, especially what's happening on the retails and second the weather people have talked about. Structurally we're not seeing anything that we're seeing differently than the past six or eight quarters and how we think about the business. And when I talk about weather and these normalized promotions, as we came into April we're seeing those behind us and we're seeing at least our traffic patterns are building as we expect, coming off these two anomalies. So <UNK>, I don't see anything structurally in the industry that's really causing any noise outside of the deflation, really. Yes. If you look at our 4% to 5% we gave for the second quarter with a near zero inflation environment that puts you into the mid to high 4% for the first half of the year and then when we combine that with lapping the protein deflation as well as more importantly some of the merchandising and sales initiatives that we have planned for the back half of the year, we really think that we can continue to drive the traffic that we're seeing today and going into the future. So to the extent I think that the back half of the year, back half of the year the overall inflation remains muted. That could perhaps make that number come off the 6%. But we think it's too early of a call at this point to move our full-year guidance and we felt that it was more prudent to just talk about what we're seeing in the second quarter. Yes. I think the key thing there was is unfortunately we hate the word weather but it was for the most part weather-related in the middle part of the country, particularly. Then some in Southern California, which had gotten heavy rains. and then some permitting issues, but that was to a lesser degree. So I think the weather really pushed some of our construction timeline back in the middle of the country and some in Southern California and as you go through that it just pushed some of our second quarter openings into third quarter and third quarter openings shifting slightly from early in the third quarter to middle of the third quarter. So some sales weeks lost there. It's not ideal but it's mother nature driven for the most part. Yes. What we always do is we try to carry alternate sites and what that allows is if for some reason a particular project does get delayed whether it's a city or weather or whatnot or multiple projects, then we have flexibility in our agreements which allow us to pull other sites up and bump these sites back and not pay incremental rent. So, we try to be prudent and always carry some backup sites. We are confident in overall tonnage organizationally. Produce was slightly off and that was more a function of the flesh markets <UNK> alluded to in Q4. But protein almost was real close to double-digit tonnage. So we feel good, we feel very, very good about the tonnage. Obviously as <UNK> talked about we took ---+ there was a little bit of promotional activity so there was a little bit of retail compression but overall tonnage was very, very strong. I think they're very excited if they're coming in for our strong promotions and I think the overall mood is good and I think look at the space that we're in, the natural and organic space, as well as doing a much better job overall on the perishable side of the business. We continue to see as I mentioned before a strong, close to double-digit growth in the sector. The attribute growth is strong. People are gravitating towards our concept and seeing us more as a one-stop shop as opposed to a secondary or in the past even a tertiary. The sense we get is good and consistent with the prior quarters. This is <UNK>. Relative to the benefit you get to gross margin for private label, we don't disclose that, there's obviously a benefit to it. But from where we've always position it as more of strengthening in our brand and strengthening our overall mousetrap and creating unique products that drive you into our stores. We do see some positive growth on the gross margin side, but that's never been our primary driver. In terms of overall penetration we're very close to 10% penetration this year which ---+ or for this quarter, which was 150 points growth over first quarter of last year so significant growth. Where's the penetration overall target. And we want to be well-balanced. Want to make sure we have great variety for our consumer so we don't want to become too one-dimensional on private label. And as we calculate our penetration number just to remind you we don't obviously we sell 25% in produce. There's not a lot of UPC driven items in there that can be private labeled. So that along with your vitamin category that has 7,500 items, we're well represented in all categories but we'll have lower penetration there as well. And so all random weight we don't count and so it's just specific UPCs. So what you really have to compare us to the chains when you look at our nonperishable environment and we'll get excess of 20% over the next 2 years to 3 years. Overall I think penetration for us, we've targeted at low teens, 13% or 14% and we'd be very comfortable with that number. Sure, it's <UNK>. We're seeing very little change at all in both cannibalization impact as well as competitive intrusions and so as we said in the past we're trending around 125 basis points and that's what our line of sight is for the balance of the year at this point. And <UNK> to the extent that in forward years so as <UNK> said, that's a line of sight for this year and in forward years to the extent that we're seeing anything materially higher or lower than that number will always call it out and why we think that's a good thing. Yes. In the fourth quarter we had called out the Haggen stores benefited us by 25 basis points and as those stores have opened we've probably seen slight impact in the early opening period from the grand promotion ads, but it's settled down and a lot of the stores are now open. So in general what we're seeing is that 25 basis point benefit we had a for a couple of quarters, 1-1/2 quarters has disappeared or dissipated. But as we passed those grand openings we're seeing our comps come right back to current normalized levels. So no significant impact there except loss of that incremental traffic for a short period of time. Yes. I think from a gross margin standpoint just to go back to Q1, a lot of that incremental year-over-year expansion was due to the deflation in the protein categories. And we're seeing that continue, but to a lesser extent in the second quarter. So I think it's fair to say that when you look at our original guidance of flat margins obviously with the 80 basis points benefit in Q1 and a more muted impact in Q2, it will definitely have some expansion for the full-year is our anticipation. But again as we pointed out earlier on this call, we are seeing some step up in promotional activity and always want to remind everyone that we're always looking at our competitive pricing position across all the markets that we are doing business in and we'll make the right call to maintain a very strong value proposition with the customer. Yes. So, after the repurchase that we completed in the first quarter there's about $65 million left on the authorization of $150 million. Obviously we will be strategic where we see opportunity and clearly there's value. We'll monitor that on an ongoing basis. Yes, I'll start and then let <UNK> add. If you remember our core customer, we have actually a very wide swath of customers but our core customer is that middle income customer and upper middle income customer. And so in terms of buying patterns what we're seeing is customers are continuing to want to eat fresh and clean ingredient products. So we've not seen any type of step down in purchasing behavior. In fact, as <UNK> alluded to, we're seeing even deeper penetration in some of our attribute driven categories and a lot of that has to do with the way Sprouts goes to market. The customer engagements and service in the store and also the promotions and other sales and merchandising approach that we take to the marketplace in our nonperishable's department. I don't know, <UNK>, if you want to add anything else that you're seeing out there at a deeper level. I'm not seeing anything at a deeper level. But I think that if there's a softness in the economy we've always been well-positioned being a value proposition for our customer and if you look at historical numbers we fared extremely well in the tough times of 2007, 2008. We haven't seen anything as of yet but our value position really protects us on a down market. Yes. I think for the most part the quarter we were seeing it driven more meaningfully from weather as well as some cannibalization of some of our stores. The only pocket that we've seen with perhaps a little bit of softness and we don't have a lot of stores there, but is Oklahoma. We're not seeing that anywhere else within our portfolio and even within Oklahoma it's maybe a couple points differential, but not any deeper than that. Sure. The southeast is in line with our model and our expectations and it's continuing to build on the track that we've seen historically in new markets. And when we look at historically how we built in Dallas and Denver, Arizona, northern California, as we build new markets we always see this continuing momentum building of the brand and see that traction build into the stores. So we're starting to see that in the southeast which is exciting as that momentum is starting to build when there is a deeper awareness of the brand and understanding of the business and understanding of the value proposition across the store. So there's good momentum building in places like Atlanta where we've been for about two years now and that customers, the Sprouts brand is really serving to resonate with that every day middle income customer. Good start and good deep and it's ahead, if you look at the curve, it's ahead of where I would put it when we first went into Dallas or Denver, et cetera, in terms of average volumes. Yes. The average weekly sales curve. That's correct. Thank you everybody for your interest in Sprouts. And as we mentioned is we think we've gone past most of the weather and some of the normalization and promotions in the first quarter. And we're looking forward to an exciting summer and reporting back out on that on our next call. And hope to see you soon. Thank you.

2016_SFM

2018

BELFB

BELFB #Thank you very much. Joining on the call today is <UNK> <UNK>, our Vice President Finance; <UNK> <UNK>, our Director of Financial Reporting. And before we begin, I'd like to ask <UNK> to go over the safe harbor statement. <UNK>. Thank you, <UNK>. Before going through the financials, I would like to provide a brief update on how the businesses did from an operational standpoint this quarter, and what we see going forward. Overall, we are being encouraged by the continued growth of our backlog, which reached $178.3 million as of March 31, 2018, representing a 29% increase from March 31, 2017, level. We believe our top line has finally turned around as gain in our backlog is now translating into sales. Following 9 consecutive quarters of year-over-year decline, this marks the second consecutive quarter with year-over-year sales growth. Sales during the first quarter were $118.3 million, up 4% from the first quarter of 2017, led by sales growth within our Magnetic Solutions group of $3.3 million and our Connectivity Solutions group of $1.2 million. Sales of Power Solutions and Protection products were the same as of first quarter 2017 levels. Despite a $1.6 million decline in sales related to the previously divested NPS business. When the sales have increased during the first quarter of last year, our margin and bottom line were unfavorably impacted by several factors. The continuing weakening of the U.S. dollar, we're up to local currencies where we manufacture our products created a downward pressure on our margins during the quarter. In addition, minimum wage increases in the PRC and supply constraints related to certain of our purchase components were also factors, leading to higher costs. Also, our Power Solutions business continue having negative impact on our bottom line. Our major focus has been to bring this group back to profitability, and we're doing everything possible to accomplish this goal. This restructuring efforts initiated in late 2017, equated to $1.2 million of our annualized cost savings, and we begin to realize this benefit from these efforts in the second quarter. Our Connectivity Solutions group finished the quarter with 3% increase in sales over the last year's first quarter. With record bookings resulting in book-to-bill ratio, 1.3% for the first quarter. This was led by increased bookings from military segment for our Cinch active optical products with use of encrypted and communication applications for our Microminiature copper connectivity products in relation to key defense programs. Our Stewart Connector business has also rebound nicely from the depressed sales levels in 2017 with a 7% increase in the first quarter sales compared to the same period last year. Across the full Connectivity Solutions group, there was also a healthy flow of orders from our distribution ---+ from our distributors, driving quarter-over-quarter growth. We've also pleased with the significant increase in overall number of new customers buying our products with distribution. Our NPA ---+ NPI over the last several quarters have resulted in over 300 new Connectivity Solutions customers buying in Q1. Overall, the backlog of orders for our Connectivity Products grew by $15.8 million, or a 33% increase since year-end. Our Magnetic Solutions group had sales growth of 9% from last year's first quarter and strong bookings resulted in a book-to-bill ratio of 1:1 for the first quarter 2018. This group consists primarily of our integrated connector modules, ICMs and our Signal Transformer products. Demand for ICM products have increased during the quarter within the enterprise switching, industrial Ethernet and several markets were led to sales growth of 9.7% over last year's first quarter. ICM product line also finished the quarter with a 20% ---+ 27% increase in backlog compared to its year-end level. Sales of our Signal Transformer products increased by 8.2% during the first quarter of 2018 as compared to the same period last year, and our backlog of orders at March 31, 2018, grew by 22% since year-end. The increased demand for Signal Products was driven by new programs and recent wins for industrial applications. During the first quarter, backlog of our orders for all Magnetic products grew by $8.6 million or 25% since year-end. We're expecting continued year-over-year growth in this group. Sales within our Power Solutions production group were flat compared to the same period of 2017 despite a $1.6 million decline related to our NPS divestitures. With increased demand for our customer module products probably for a small lighting application and higher AC-DC converter sales in marine applications. Sales of our circuit protection products had year-over-year increase for 8 consecutive quarters with recent growth drive driven by successful utilization of our distribution channels. Within the Power Solutions business, our front-end power supplies continue to have lower sales value as we wait for new design wins to move into production. We have improved our penetration to eMobility and data center markets. During the first quarter of 2018, we had 12 new design wins in the area of eMobility and now sales ---+ and those sales more than doubled to $1.6 million during the quarter. The growth was driven by increased demand for our products used in commercial vehicles, such as electric fire trucks, and garbage trucks, electric buses, driverless cars and heavy earth-moving equipment. We expect this to be an area for continued growth for our power product lines. We have also recently broadening our scope of our data center customer base, which now includes 2 blockchain customers, which generated over $1 million of sales in the first quarter of 2018. Demand for our Power Products within the rail industrial applications was also strong in the first quarter, growing by $1.1 million, or 17% compared to first quarter of last year. Our Power Solutions protection group finished the first quarter with book-to-bill ratio of 1.2 and entering the second quarter with a healthy backlog, which is up by $7.4 million or 12% from year-end. We continue to monitor the status of the recent tariffs' proposals and what effect it might have on our products. At this point in time, it's too early to make a determination. And with that, I would like to turn the call over to <UNK> to go through the financial updates. <UNK>. Thanks, Dan. To provide a quick recap on sales, sales during the first quarter were $118.3 million. By geographic segment, North American sales were $59.5 million, Asian sales were $38.6 million and European sales were $20.2 million. By product group, Connectivity Solutions sales were $42.9 million, Magnetic Solutions sales were $38.2 million, and Power Solutions and Protection sales were $37.1 million. Gross profit margins declined to 17.9% in the first quarter of 2018 as compared with 20.6% in the first quarter of 2017. This was largely due to unfavorable exchange rate fluctuations related to the Chinese renminbi and the Mexican peso, which essentially increase the operating cost at our factories in those countries by approximately 8% over the last year's first quarter. We also had government mandated minimum wage increases take effect at one of our factories in China at the beginning of February. With regards to material costs, we've seen upward price pressures in the first quarter due to the continued supply constraints on certain purchase components, such as resistors, capacitors as well as increased pricing on certain commodities including copper. Our selling, general and administrative expenses were $20.7 million, or 17.5% of sales as compared with $21 million, or 18.5% of sales in the first quarter of 2017. This decline related to lower legal and professional fees of $900,000 and a decrease in depreciation and amortization expense of $200,000, largely offset by higher foreign exchange losses of $500,000 and increased salaries and fringe benefit costs of $300,000 compared to the 2017 period. On a go-forward basis, we would expect SG&A to run between $20 million and $21 million per quarter in the near term, barring any significant fluctuations in foreign currency. As a result of these factors, we generated income from operations of $437,000 in the first quarter of 2018 as compared to $2.4 million in the first quarter of 2017. Interest expense was $1.2 million in the first quarter of 2018, down $247,000 from the same period last year as lower debt balance mitigated the effect of higher interest rates in 2018. Our provision for income tax was $325,000 for the first quarter of 2018 compared to a benefit of $23,000 during last year's first quarter. The change in the tax provision primarily relates to a lower benefit arising from losses in North America segment due to reduction in the U.S. tax rate of 35% in 2017 to 21% in 2018. Additionally, there was an increase in the liability for uncertain tax positions in the 2018 period. Based on the 2-year average of where our profits have historically been earned, we're estimating that a global effective tax rate for 2018 will be in the range of 17% to 19%. Earnings per share for the Class A common shares was a loss of $0.11 per share in the first quarter of 2018 as compared with earnings of $0.05 per share in the first quarter of 2017. Earnings per share for the Class B common shares was a loss of $0.11 per share in the first quarter of 2018 as compared with earnings of $0.06 per share in the first quarter of 2017. On a non-GAAP basis, which excludes certain unusual and other nonrecurring items, EPS for Class A shares was a loss of $0.09 per share in the first quarter of 2018 as compared with earnings of $0.07 per share in the first quarter of 2017. On a non-GAAP basis, EPS for class B shares was a loss of $0.09 per share for the first quarter of 2018 as compared with earnings of $0.09 per share in the first quarter of 2017. And now I'd like to go through some balance sheet and cash flow items. Our cash and cash equivalents balance at March 31, 2018, was $66.9 million, a decrease of $2.5 million from December 31, 2017. During the first quarter of 2018, we made net payments of $800,000 towards our outstanding debt balance. We also used cash for capital expenditures of $2.2 million, dividend payments of $800,000 and interest payments of $1.1 million. Accounts receivables were $76.8 million at March 31, 2018, as compared with $78.8 million at December 31, 2017. Day sales outstanding were 58 days at March 31, 2018, compared to 60 days at December 31, 2017. The decrease in our accounts receivable balance is largely due to the lower sales volume in the first quarter of 2018 as compared to the fourth quarter of 2017, and the timing of payments from a few large customers in our Asia segment. Inventories were $102.7 million at March 31, 2018, down $5 million from December 31, 2017. Inventories were $10 million lower due to the adoption of the new revenue net recognition standard effective January 1, 2018. The adoption of the standard impacted the timing of revenue recognition and the corresponding release of finished goods from our inventory balance, related to product sales at customer control hubs. Excluding the effects of this adjustment, our inventory balance would've increased by $4.9 million from December 31, 2017, primarily in raw materials and work in progress in response to the increase in backlog during the first quarter of 2018. Accounts payable were $48.2 million at March 31, 2018, up from $47.9 million at December 31, 2017, due to the increase in raw material purchases. Bel's total outstanding debt as of March 31, 2018, was $124.2 million, excluding deferred financing cost. This represents a net decrease of $800,000 from our 2017 year-end debt level. Book value per share, which is calculated as stockholders' equity divided by our combined A and B classes of common stock outstanding, was $13.66 per share at March 31, 2018, as compared to $13.13 per share at December 31, 2017. And now, I'd like to turn the call back to Dan and open the call for questions. Dan. Thank you. Can we open up the call for any questions people might have, please. To be honest, we've been listening to all the calls from our competitors and people out in the field. And at this point, nobody has been making any comments. They all are in a wait and see so it's impossible for us to make a determination of how the tariffs are going to affect us. Or I think people are more concerned now with the long lead times of some capacitors and resistors and some semiconductors that have stretched out to ---+ our lead times of over 52 weeks. And then they had some very big price increases. Yes, anything that has ---+ anything that stretch out long lead times, prices are going up, yes. Not as fast as I would like. In our distribution channel, it's substantially easier for our major OEM customers. We have annual contracts so we have to review it during our contract period. But it's something that we have had some price increases over the past couple of months. And when the opportunity comes, we are evaluating the cost of what the market allows. On the Power Supply group. Magnetics. I think, we had very good growth. I don't think we can maintain that growth through the balance of the year, but not to that higher level. The pipeline we have, I would think, we're looking at ---+ we have 6 NDAs signed and anywhere from $50 million of revenue up to $1 billion of revenue. So again, we are looking at all different types of companies. We're done. I would have to say that's the easiest conference call I've had in my life. And so, thank you very much. Hopefully, we can improve the bottom line next quarter and also the top line. So thank you for your time.

2018_BELFB

2016

FISV

FISV #I'm only pausing, <UNK>, because I'm trying to think about ---+ we typically don't give much segment-by-segment guidance. But I would say that its would be measurable, and probably we'll leave it at that. Sure, <UNK>. I assume that on the competitive question you were talking about the guys who bought SunGard. We don't really compete very much against the SunGard, SunGard asset set. That is not strategically aligned with where we're focused in the market. So frankly, we have not seen very much change in the competitive market because of that, and I don't see a lot of parallel between, for example, what's going on in the P-to-P space with the Early Warning announcement and our over 2,000 institutions using Popmoney, and what is being done in that larger end. So strategically, that's not where we've elected or opted to focus. So we'll continue to look for ways to increase the robustness and the relevance of our model, but I don't think you'll see us do something like that. As it relates to the non-US side of the market, the beauty of the US market is, it's a relatively singular large market. And there are not any other large singularly focused markets in the world, with the exception of probably China and perhaps India, and those markets have nuances of their own that we won't talk about at this point. So the challenge for us is, being ---+ we'd like in some ways have a larger non-US footprint, but we want that non-US footprint to have the high quality revenue characteristics that we look for, and those would be sustainable recurring streams of revenue that have attractive levels of free cash. So we continue to use those screens and that's always going to be the constraints to how we think about deploying capital, both in and out of the US. Thank you. I'll give it a shot and <UNK> will fill in where I have missed. I'm going to take the second one first. So we have ideas on how the roll-out will go. I think there has been some discussion publicly about advertising, and some marketing around the P-to-P services for some of the larger institutions. We've seen that going on intermittently, but there seems to be a lot of energy around that. And our experience, at least with services such as bill pay, is when you talk about them to consumers, they tend to want to start using them. So we would expect to see transactions start to grow, as awareness is raised. And perhaps it won't be as ---+ the velocity won't be the same as Venmo, but frankly we believe that most consumers would prefer to transact in an area that is safe and secure, and through their trusted financial institution. And so we're optimistic about how that will turn into growth in the future. We would expect that growth to primarily be ---+ to come through as payment transaction volumes, some services, helping institutions think about how they're going to best position their offerings, or embed some of our technologies in their own unique offerings, if they would like to do. There are many, <UNK>, institutions who use our bill pay technology, but they embed it into an experience that's unique to them, and I think we'll see some of that as we move through P-to-P. I think it will come through in a lot of different ways, ultimately be through transactions, and either transactions that we initiate or transactions that we accept on behalf of our clients. So a little bit more of a gateway nuance on top of the normal end-to-end processing that we do overall. And <UNK>, let me just move on to the other half of your question. We don't disclose what the size of the mobile or digital business is on a standalone basis. We have, at our investor days, we have put wheels out there that give the general sizing, as typically part of our, I think, it's part of our e-payments business. It's out there. It's a growing, a rapidly growing piece of the business. The growth contributions are important. And we are ---+ I would actually venture to say we are even earlier in our mobile journey and our online transformation journey than we are in our EMV journey. And that is, I mean, we have significant growth runway to go. Most of the pundits believe that we'll see, over the next three to five years, 70% to 80% of banking users be mobile, and that number for us is well, well, well, well south of that. So we feel quite good about that. And again, I would not underestimate the importance of remodeling the digital experience for online, as well. So both of those we think are important. And then we did do the little ---+ the ACI, the Community Financial Services acquisition early on. We're just starting to move those client institutions, and ultimately their customers into the mix. And we think there's a lot of value to be created there as well. Sure. Yes, the answer is for the client institutions over time when digital is scale, self service is a much more important piece of the equation. And so I do believe that for the financial institutions, they'll see cost benefits. For us, the most important part of us getting cost benefits is scaling the platform. So the more scale we get in the platform, the lower our costs, unit cost will get over time. Again, if you think about ---+ we supply these technologies to the financial institution. They're supplying them to their end customers. We will ---+ we take in ---+ if we have a core account processing client, we're providing them with support for any one of the 28 different applications that they have. I think as humans get more dependent on self service, it could have a derivative impact on us. But we haven't thought about that as a way of reducing our costs, but I'll certainly have <UNK> take a look at that. I think that at least from our standpoint, one of the reasons why we're so bullish, both for our results this year, but also moving into 2017, is our pipeline, even with the very strong performance, the pipeline is quite robust right now. And it's not as geometric as we had a peak in December and a peak in July, because frankly, we did have a slower year, last year. We had a very, very strong year in 2014. We spent a good part of 2015 replenishing the pipeline. But not just replenishing it by adding in clients but really looking at our processes and building what we believe is a more sustainable engine for the future, and ensuring that pipeline maintains at a higher level. I would actually say that we have more large transactions in our pipeline right now, even with our closes in July, than we had at the same juncture last year. So the values, and especially the probability weighted values are substantially better now than they were a year ago. And given some of the momentum that we're seeing, we would at least be optimistic that we would be in even better shape a year from now. That's right. I can't speak to the exactness of the numbers, but I would say that they're directionally correct. One of the biggest swing factors, though, is the termination swing. So we're getting, <UNK> ---+ we mentioned in our remarks that we expected termination fee revenue to be down call it $15 million, $20 million in Q3. But we expect to return to normal termination fee levels in Q4. So you have that oddity that you have to, I think, normalize. Beyond that normalization, we always have a little seasonality in Q4. But I think directionally that's why we have a good amount of confidence when we start thinking about how that translates to 2017. That's essentially the right way to think about it, <UNK>. We'll see better growth in the second half of the year that will more closely approximate the growth in earnings per share. And as we pointed out in the opening comments, we expect to be more at than $4.70 free cash flow to shares. <UNK>, I think you know pretty well that typically we're running a little bit better than operating earnings in our free cash flow, and then we have the benefit of reduced share count. And <UNK> will probably reprimand me but basically in Q2 we had a receivable, we had a build in receivables without any corresponding build in days, and we also had an unusually large tax payment, and those kinds of things we would not expect to recur for the remainder of the year. So we would expect to be generally back on track. Correct. Thanks everyone for taking time with us this afternoon. It's always a pleasure. If you have any follow-up, please be sure to contact our Investor Relations group. Have a good evening.

2016_FISV

2017

DISH

DISH #<UNK>, I don't know that I can answer the valuation question. I can tell you the logic of why we swapped assets. It was almost 10 years ago when we split the companies apart. We had a logic to why we were doing it. We had a theory on where we thought the market was going to go. Some of those theories didn't turn out to be exactly right. For example, we thought that the set-top box business from an EchoStar perspective, as a separate company we could go out and get other people in the industry, cable industry in other parts of the world, and we just really weren't that successful. And now with OTT proliferation, and video becoming more of an app, the set-top box business is not nearly ---+ in terms of set-top boxes we just don't see as good a long-term future in that side of the business. And at the same time, DISH became very dependent on EchoStar for core services, whether it be uplink services, backhaul for local channels, technology. It made more sense for DISH to be in control of their own destiny for those assets. And then on the flip side of it, EchoStar, with the acquisition of Hughes and the success that Hughes has shown, was becoming more of a ---+ they really are unique in the ability to build and launch high throughput satellites with all the technology that goes around that. There's really only a few companies that do that in the world today. And they are now able to focus their resources on the satellite and high throughput and broadband satellite side of the business, which they think is a growing worldwide business. So, really it just aligns the resources to where they want to be, I think. I think there is a secondary benefit. You also can look out there and say there's probably going to be M&A activity out there in the future. It may, perhaps, the new administration is more attuned to that. And this probably aligns the assets in a better way to participate potentially in that, as well. No. (laughter) On the SAC, I'd say that SAC for Sling is very low and SAC for DISH is probably still in the historical range that it's been. But given that there's some momentum within Sling, that's the primary driver to bring it down. I think a lot depends on the ratio between Sling and DISH. But if it's on the current trend it's probably in that range. I will let <UNK> ---+ you should take the tax question ---+ or Paul, one of the two. Sure, <UNK>. Yes, cash taxes were up year over year over $400 million. The increase in cash taxes in 2016 was due to an increase in DISH's pre-tax earnings relative to 2015 and a sizable taxable gain that we recognized related to DISH's derivative positions. In 2017 without a realizable taxable gain on derivatives ---+ and of course we are not factoring in any potential impact of the current auction because we can't comment on that ---+ we do expect to pay less cash tax in 2017. In the long term we think that DISH will probably benefit, like most businesses, with tax reform. Historically, though, our cash tax rate has been lower than the statutory rate. So, the impact of a lower corporate tax rate may not have as big of an impact to DISH cash taxes in the short term. But, of course, the new tax policy has yet to be passed, so I really can't speculate on the impact to DISH. I would say typically we lease those pretty much to the end of the useful life. I don't know whether some of those satellites are actually pretty close to end of life, which means we probably wouldn't extend their life. But if they have life we typically utilize those. We do have a satellite launch scheduled later this year and that capacity may give us some flexibility. But I think that's an EchoStar-owned satellite. So, I didn't answer your question. I really don't know. If you look at our 10-K, we have one satellite that the lease ends. Yes. And we likely, given the orbital slot it's in, will not renew that lease. And that's probably because it's close to end of life. And it is close to end of life, yes. Yes. I think we talked about this in the last thing. There's going to be really a fundamental shift in wireless technology with 5G. You are reading a lot about it. Because it brings lower latency, a lot faster throughput, enables internet of things, in particular narrowband Internet of things, for massive internet connectivity. It makes logical sense for us to build a network not like the current incumbents have but with utilizing the new technology. In other words, we can build a network that's completely an IP network, take advantage of all the 5G technologies, and also take advantage of the virtualization of the core, for example, so that the smarts are in the cloud instead of being on the tower. The net effect of that is your buildout cost is a lot less and your OpEx is a lot less, and you have a modern network that has much more capacity than networks do today. So, that's what we are focused on. It would be logical for us to ---+ there's a couple of different elections we could make in terms of build out. There's either an interim, which is really coming up next month, or you can go for an accelerated buildout, elect the accelerated buildout, where in our case would be really a March of 2020 buildout. That would be a likely choice for us to choose accelerated buildout for 2020. We haven't been standing still. We have done a lot in preparation. Obviously in 3G BP you have to get your spectrum and bands that are 3GP authorized, which we have done, with bands 29, 66 and 70. So, most of our spectrum now is in licensed band. You have to do things like carrier aggregation and make sure you get different combinations where you can aggregate your spectrum. We've done a lot of that. We still have a little bit more of that to do. We now have sent out RFIs on the technology that we think we would utilize and are evaluating that. We have [multiple] for congress coming up. We could see everything in the world in the next couple of weeks. We've done some testing, both on the broadcast side for 700 and on fixed wireless. So, we feel pretty good about it. I think there's probably always going to be some skepticism, but it's not our first rodeo. It reminds me a lot of how we first entered the satellite television business where we decided in 1992 that we were going to build satellites, and then by 1995 we were launching those satellites. We launched our first satellite and we were able to cover the whole country and utilize our license. It was a complex three-year build of the satellite with complications with the Chinese launch. And we had to build uplink centers and connectivity around the country, and build a dealer network and build encryption and set-top box, and so forth. So, all those things had to come together. My experience has been that those things go a lot smoother when you spend a fair amount of your time planning and not just doing things and then changing things. I think we spent a lot of time planning and we feel like we're in pretty good shape to go out and have a network that can take advantage of it. One of the things we're waiting on, of course, is, the anti-collusion period has been off and on for the last three years. And there are other people who have to build out networks for different reasons. There's probably some opportunity to partner when the anti-collusion period is up, which we hope will be up in the next six or seven weeks. We obviously want to see the results of the 600 auction. We also want to see the results of our partners in AWS-3 spectrum with their litigation as to whether they are going to receive the discount or not in the AWS-3 auction. So, all those things we think are going to come together in the next couple of months. We're going to be communicating both to the FCC and to the Street as to exactly what we're going to be doing. But, obviously, we feel comfortable that we can have a very state-of-the-art network. And we think it can be built for materially less than current networks were built for. I guess I can kind of answer that. I think that anytime you can get new challenges you can get pretty invigorated. I don't think that I'm going to be ---+ I think that my role is a bit more of a coach than a player, or a bit more of a general manager even than a coach. I think we've built a good team around here to go out and execute on some of the opportunities that we see out there. But 5G is particularly exciting to me, particularly the internet of things, because when you start thinking about ---+ and, so, any time you're passionate about something, I think you just have a different set of energy. I am pretty impressed with our President who is a bit older than I am and seems to have more energy than people might have been younger than him in the past. So, I think it really depends on if you have the passion or not. The internet of things is so interesting because, A, the fact is that billions of devices are going to be connected ---+ machines or microprocessors or automobiles. It's healthcare, it's industrial, it's agriculture, it's entertainment, whether it be virtual reality, augmented reality, municipal, utilities. All those things are going to be connected with the new technologies. And somebody is going to lead the way. It reminds me, to some degree, of the advent of the internet. We have the core ingredient for the internet of things which is spectrum and the ability to connect things, both inside and outside the home. So, I'm excited about that and about what we can do as a company. Look, I don't know if we're going to make a big difference on how you make a phone call, but I think we can make a big difference in how you connect things. And part of our strategy has been in past auctions, is we look at ---+ the FCC always sets the pricing based on population, but in past auctions we've always maybe thought that was shortsighted in the sense that we really look at auctions as the ability to connect to microprocessors and machines and things. When you do that, you are not talking about 3 million population in the Denver area, you're talking about maybe 1 billion population of things you connect to, and that gives you a different focus on how you might approach those things. It's very similar to how we think spectrum is a bit asynchronous. We were probably one of the first people to think about it that way. So, we just think about the network a different way and that's pretty exciting because we can make a difference there. We can make a difference in productivity, we can make a difference in people's lives. So, while you hopefully make a profit, you are also increasing productivity in the United States in a number of ways. That's a long-winded answer. Because we're still going through all of our quotes and things, it's probably premature to do that. But it is materially ---+ and obviously you would build a network in phases ---+ but it would be materially less than networks that have been built in the past. You definitely can do things in 5G and with the virtual network that you just can't do in the past. In the internet of things, particularly in narrow band of internet of things, you can get much deeper coverage from a single tower site, so you, in theory, would need less tower sites. And those savings can be material. We certainly will share with the Street as we get a bit more detail around that. We're not that far away from that, by the way in terms of how we're going to build out. The other part of it is where you can build out with a partner, for example, they are going up and putting ---+ I think T-Mobile has talked about building out 600 next year. To the extent that they are going up to a tower and you can attach some of your product at the same time you both can share in the savings. AWS-3, AT&T is talking building AWS-3 and WCS, and Horizon is talking about AWS-3. There is the FirstNet build that is going to happen. So, there's going to be a lot of builds. [Logato's] got a build and increase their network. There's a lot of people out there that will be building and there's probably an opportunity to save and partnership with, where both parties reduce costs. The part we probably won't have as much visibility to short term. The way I think about that, a decade ago, five years ago, you got a bundle of channels from your pay TV operator, and that was really your only choice ---+ buy the big bundle of channels, get to watch everything. The launch of Netflix streaming, in combination with the growth of OTA, use of antennas, has created an alternative. And then you layer on the direct-to-consumer services that are launching. The way I think about bundles today is everybody creates their own individual bundle. You don't go to one company I am talking mostly about millennials right now, but obviously as they age up you see permeate other age groups. People put together their own bundles. They may take an antenna and Netflix and Sling. We see that combination over and over again. And then they may add on some other direct-to-consumer service that the program has had. That insight from the beginning is what has driven our strategy. Our strategy has never been just to replicate that big bundle of channels because we don't think that's really where consumers are going. Our strategy is to tap into the growth markets of broadband-only homes, use of antennas, people who want more a la carte-like experience with TV. If you look at our packaging, we have a low base price and then you add the genre mix that you want on top of that. So, we're trying to tap into that, what I see as a growing segment of people who are creating their own bundles. And I think services like what CBS is doing taps into that same mindset. It hasn't change that much. I think there's a couple of things going on. One of the things that 5G does with mobile video is it's going to allow you to use ---+ and correct me if I am wrong, <UNK>, because I'm not always the most technical person ---+ but it allows you to use all of your bandwidth and was called broadcast things you can use all your bandwidth in a broadcast mode when we're looking at and 4G I think you're only able to 60% of you to use all of your bandwidth in what's called the EM/VMS broadcasting. So, you can use all your bandwidth in a broadcast mode. When we were looking at it in 4G, I think we were only able to use 60% of the bandwidth within the broadcast mode. So, the 5G will make it incrementally more efficient. I think we'll also have to look and see what happens with ATS-3 and broadcasters because we do think there's some synergy potentially with broadcasters themselves as the ATSC comes out. You want to add something to that, <UNK>. I'm sure I bungled that. From a strategy standpoint, we still believe wireless and video are clearly converging. When we started talking about that five years ago it wasn't as evident as it is now. We've had some changes. When we agreed to lower the power level on the E block, that changed some of what we were able to do with 700-E. But, as <UNK> said, when you move to 5G the capacity is going to be so much greater that it will enable new use cases beyond just streaming video. One of the things, I think, that's not really understood maybe by people is a lot of what <UNK> does ---+ the original vision of Sling was not a consumer product, it was good to get the video in the cloud so it was prepared for a wireless network. But <UNK> said if we're going to do that, there's probably a business in selling that if we can get the programmers onboard to take a look at a new way of monetizing their assets. So, Sling became actually a product as a result of a strategy to make video available for wireless. But the actual start of that was to get the video in the cloud to prepare for wireless. There are a number of area. And, again, I'm probably not the most technical person. But certainly the network would be all IP. So, you're not carrying around 2G and edge and switch networks technology that makes everything much more complex, as an example. The second thing is, you're able to use a core. You can put a much simpler radio on the tower because the smarts are all in the cloud because the connectivity to the cloud is much better now. Most towers have fiber back to the cloud and you can do a hub-and-spoke thing. AT&T is probably the leader in that today. But they've got to redo their whole network, whereas we can start from that from scratch. And, finally, some of the technical features of 5G, particularly IOT features, allow you to potentially propagate and get much greater depth of coverage off of a single tower. And that's material. So, it reduces the number of towers that you might need. Those are just any number of things. Those are probably highlights but there's other things that would allow you to build a network much less expensively. I think that there's always been the thought within the wireless industry that consolidation may make sense. There's a lot of CapEx to build networks, and you can share that either through M&A or share that in another way. Any time you can reduce cost from a company perspective, that makes some sense. What that effect is on consumers and competition, of course, is a different question. I personally think that because people really haven't been able to have discussions over the last three years, number one, and, number two, that you have a change in administration, that potentially may be more favorable to M&A, that there certainly will probably be a lot more rumor than fact but I'm sure there will be discussions among any number of parties that are in the wireless business today and people who maybe are not in the wireless business today. We're not the biggest company, we're not going to drive that process, but obviously many of the assets that we hold probably could be involved in that mix. I don't know how the new administration will be as it relates to DISH. Chairman Pai was critical of the discounts that the DEs received in the auction. But, again, I think we just have an honest disagreement on that because we feel like they followed the rules. And that's now for an independent party to decide. Obviously we live with the decisions one way or the other. But the current Chairman is certainly pro consumer. I think he is pro-competition. And I think that bodes well for the things that we're doing at DISH because that's a very similar attitude that we have. And I think that he will be aggressive to bring new spectrum to the market, new features and new services for consumers. So, I think that bodes well for us because that's exactly what we want to do. I think that we can organically ---+ our baseline is that we organically will meet. It's only a small portion of our spectrum that we have in 2020. Some is 2024 and some is 2028, or something. But we will have an organic ---+ our focus has been on organic build out for the 2020 timeframe. Obviously, even without M&A, I think as others build out there's opportunities to do some joint things together, if, say, both companies made money. And obviously your production is as good as mind as to where M&A goes in the industry, other than we're not the guys that are going to drive that. Somebody else is going to drive that train. I'm definitely saying that we believe that we have a plan to build out the part of the spectrum that's due in 2020. We certainly have that as a focus. Obviously as people, as technology changes and events change, and to the extent there are events that happen in the industry, obviously things could change. But we certainly believe we can control our own destiny. We do not need to do an M&A transaction to make the buildout schedule. This is <UNK>. I think it's smart. I think that's a reasonable strategy. I think that there are probably too many channels out there today. And there are channels that we know are lightly viewed that consumers have to pay for. And with the advent of competition from Netflix and Amazon and Apple and other people who are now in the programming business, I think what Viacom is doing is wise. I think there's still value in some of their other channels, and I don't think they're giving up on those channels. I just think they are going where the eyeballs are going. And I think we will probably see other content providers focus on fewer channels but make them better, because if they don't they are going to get eaten up by the new entrants into the production business. <UNK>, this is <UNK>. There was quite a bit of fanfare around 28 gig a year ago this month. I saw recently that now there is a number of trials to be deployed later this year. We think it is promising, but a little early to predict where it comes out. And, incidentally, as part of the EchoStar transaction that we announced earlier in the month, we will pick up 28 gigahertz that they have licenses for in four markets in the US. So, it will give us an opportunity to test with 28, as well. And, then, we think in the long run bringing more spectrum to the market will serve the public interest. Related to that, we have the 12-2 to 12-7 500 megahertz of spectrum that has to be coordinated with DBS. But we think there is a path to bring that to market in a two-way fashion. We have implemented some filings with the FCC under the previous administration to move that forward into a rulemaking process. And we are hopeful that will proceed under the current administration. I don't know that I would say it that way, <UNK>, because once you get down from the satellite you start getting into the infrastructure. I think security is a core resource that we have at DISH. We know a bit about it. As an example, whether it be your home security system or whether it be video secure or whether it be a network with internet of things, people are going to want different varying levels of security. In some cases, perhaps a vending machine reporting in that they're out of Cokes. People may not care about security but you are certainly going to care about your camera on your front door being secure. And you're certainly going to care about your utility meter being secure. You're going to care about your health information being secure. It's just one more thing that we think we have a core competency in and it will be part of what we do in the future.

2017_DISH

2017

RL

RL #Thank you, <UNK>, and good morning, everyone Our second quarter results showed strong progress on resetting the business to a healthier base Our quality of sales improvements are delivering higher AURs, lower discounts, expanded gross margins, higher inventory turns and significant growth in free cash flow Our performance this quarter was achieved despite meaningful impact from the tragic hurricanes that affected Texas, Florida and Puerto Rico In total, we experienced about 1 point of comp pressure in North America as a result of the hurricanes But our results do not tell the full story, and I am incredibly proud of our teams for their swift and tireless actions to ensure that all our employees were safe, to bring relief their communities and to reopen our stores quickly following these devastating events Let me now turn to our results Second quarter revenues declined 9% on both a reported basis and in constant currency, which was at the high end of our guidance Adjusted operating margin was 13.4%, 100 basis points above last year on a reported basis and 70 points higher in constant currency Gross margin in the second quarter was up 300 basis points to last year and up 290 basis points in constant currency, driven by both average unit retail increases and discount rate reductions Consistent with previous quarters, approximately half of the increase was driven by reduced promotional activity and half by favorable geographic and channel mix We also remain on track with our target expense savings for the year Operating expenses were down 5% to last year in the second quarter, driven by rightsizing our cost structure, closing unprofitable distribution and changing product development processes through SKU optimization This productivity allows us to fund our early growth initiatives while delivering our performance commitments for the year Moving on to our segment performance Starting with North America We continue to execute our plan to come back to profitable growth Revenue was down 16% in the second quarter, reflecting substantial progress on quality-of-sales initiatives Despite the challenging top line, our team was able to expand adjusted operating margin 150 basis points In North America wholesale, we continue to take deliberate actions to ensure the health of our brand and to set us up for long-term success Execution progress this quarter focused on distribution closures, brand exits, off-price reductions, receipt fullbacks and lower promotional level These actions accounted for approximately 70% of the 22% decline in the U.S wholesale revenue this quarter Our pullback in the off-price channel drove lower penetration within our North America wholesale business This will continue through the remainder of the year Consumer demand and channel dynamics remained challenging in North America wholesale and contributed to comp declines estimated in the mid- to high single digits However, our digital wholesale business continued to be a highlight and posted growth last year We are addressing the weak underlying demand by evolving our product and marketing and by investing in our wholesale store environments to improve the consumer experience As an example, as part of our Stadium launch in September, we dropped a special capsule of knitwear items with the famous P wing logo in select Macy's and Bloomingdale's stores with customers lining up for the product overnight As <UNK> highlighted, early reads on fall product performance in Polo has shown an improving trend, which is promising In our directly operated e-commerce business in North America, comps were down 18% in the quarter, as expected, but gross margin expanded significantly as we continued our strategy to aggressively reduce promotional activity to both ensure price coherency across our channel and to enhance the overall brand and shopping experience for our digital flagship consumer Following our decision to shift to a cloud-based e-commerce platform, our digital and IT teams moved with urgency and outstanding dedication to implement the platform switch in time for the upcoming holiday season As a result of their work, two weeks ago, we went live with our new cloud-based platform for RalphLauren com in North America Now that our new infrastructure platform is in place, we will grow the digital flagship experience for our customers by adding functionality and evolving the creative to the second half of this year As the new site develops, it will help us create a more brand-enhancing and consistent experience for consumers and better insights and functionality for us Moving on to Europe Revenue increased 4% on a reported basis and was relatively flat with prior year in constant currency in the second quarter Our teams in Europe delivered adjusted operating profit growth with margins up 350 basis points to last year and up 370 basis points in constant currency, driven by gross margin expansion Wholesale revenue in Europe decreased 1% in constant currency The negative impact of brand exits and significant reductions in off-price liquidation was partially offset by a shift in shipment timing from the first quarter that benefited the second quarter The underlying trend of the full price wholesale business is about flat to last year In the retail channel, constant currency comps were down 6% in Europe as we continued quality of sales work to rebalance pricing levels across channels While this impacted comp growth negatively in the second quarter, gross margin and AUR were both up and the discount rate was down significantly Going forward, we will continue this focus in Europe, which will negatively impact comps This is similar to the strategy we pursued in Asia, and they are now delivering positive comps Turning to Asia Revenue was flat to last year on a reported basis and up 4% in constant currency Adjusted operating margin was up 750 basis points and up 580 basis points in constant currency Our team is reigniting growth in the Asia region while continuing to focus on productivity This was the second quarter of positive comps, which increased 3% in constant currency, comp growth was driven by increased traffic and conversion and were keyed in the context of strong quality-of-sales initiatives We expect continued comp growth in Asia as we upgrade our distribution network and continue our marketing initiatives to amplify the brand Turning to our store fleet We continued to improve our retail network through the closure of underperforming locations and opening new stores with improved adjacencies In the second quarter, we opened 14 stand-alone stores and 34 concessions We closed 12 stand-alone stores and 37 concessions, ending this quarter with 469 stand-alone stores and 622 concessions on a global basis At yearend, we expect our stand-alone count to be up slightly to last year and our concession network to have a net increase of 20 locations, primarily in Asia Moving on to the balance sheet Our balance sheet is significantly stronger than last year and is a reflection of the operational progress we are making At the end of the second quarter, inventory declined 26% to $865 million versus last year This inventory reduction is driven by prior year restructuring actions and more effective buying processes, including a proactive pullback in receipts We will continue to focus on inventory productivity and matching inventory flows with demand We ended the second quarter with $1.7 billion in cash and short- and long-term investments, up from $1.1 billion at the end of last year's second quarter Total debt at the end of the quarter was $590 million versus $692 million last year We generated $362 million of free cash flow in the second quarter, up from $67 million in the prior year period Now I'd like to turn to guidance for the full year and the third quarter of fiscal 2018. As a reminder, this guidance excludes restructuring and other charges We are maintaining our constant currency revenue guidance for fiscal 2018 and raising the low end of our operating margin guidance We continue to expect revenues to decline 8% to 9% for the year, excluding the impact of foreign currency Brand and distribution exits in both wholesale and retail account for approximately half of the decline, with quality-of-sales initiatives and challenging traffic trends representing the remainder, partially offset by new distribution and product and marketing initiatives Foreign currency is now expected to have approximately 80 basis points of benefit to revenue growth in fiscal 2018 versus previous guidance of minimal impact, given the recent movements in foreign exchange rates Based on performance in the first half and targeted investments in the fourth quarter, we now expect operating margin for fiscal 2018 to be 9.5% to 10.5% in constant currency, up from our previous guidance of 9% to 10.5% Foreign currency is now expected to have minimal impact on operating margin for fiscal 2018 versus previous guidance of 40 to 50 basis points of pressure For the third quarter, we expect revenues to be down 6% to 8% in constant currency Foreign currency is expected to have approximately 160 to 170 basis points of benefit to revenue growth Operating margin for the third quarter is expected to be down 50 to 70 basis points in constant currency While we expect gross margin to continue to expand into the third quarter, SG&A rate will create some pressure as we start the lap last year's expense reductions and invest in growth initiatives around marketing, product and stores Foreign currency is estimated to benefit operating margin by approximately 10 to 20 basis points in the third quarter Looking towards the fourth quarter, revenue will continue to be pressured for two reasons: First, we expect to shift in wholesale shipments that benefit Q3 and pressure Q4; second, a large portion of the March quarter is driven by clearance sales post-holiday To support our quality-of-sales initiatives, we have planned for less clearance inventory, which will limit the clearance sales volumes this year year-over-year This will offset some of the benefits from the Easter shift in Q4. Also for the fourth quarter, we expect SG&A expenses to grow versus last year as we accelerate our marketing initiatives and grow our marketing investments double-digits in the second half We believe this is the right decision for the long term as we balance near-term margin pressure with setting the company up to return to growth In terms of restructuring charges, we continue to expect approximately $200 million for the year In the second quarter, we recognized $30 million of restructuring and other charges We expect our effective tax rate for fiscal 2018 to be approximately 25% and for the third quarter to be approximately 23% Let me finish by reviewing our priorities for cash and capital structure In times of dynamic change, a strong balance sheet is a strategic asset We are committed to maintaining our strong balance sheet and investment-grade credit rating to provide strategic flexibility, liquidity and access to the capital markets Within that context, our first priority for cash is to invest in our business and lay the foundation for future profitable growth Our second priority is to return capital to shareholders with a commitment to maintaining our dividend Excess cash flow beyond current and future investment and dividend needs will be considered for future potential share repurchases We are not planning share repurchases for fiscal 2018. We make this determination based on the cash needs of our business, sector dynamics and with consideration for the uncertain environment around U.S Capital expenditures for fiscal 2018 are estimated at $225 million, down from the previous guidance of $300 million We want to shift capital investments behind consumer-facing initiatives that have a demonstrated proof-of-concept and healthy rate of return In closing, we continue to make strong progress on our operational efficiencies We are elevating our brand and have strengthened our balance sheet and improved our cash flow so that we have the resources to fuel future profitable growth This, combined with Ralph's enduring vision and the commitment of our teams around the world, puts us in a strong position to drive value for all our stakeholders With that, I'd like to open it up for your questions Question-and-Answer Session Good morning, <UNK> Yeah, <UNK> I would say that definitely, as we think about the future, you're going to see, as you did this quarter, less penetration in our total wholesale mix from off-price And obviously, as <UNK> called out, digital has been a highlight in wholesale So I'd expect that to increase in penetration And certainly, we have an opportunity once we right-sized wholesale to get back to share growth So those are sort of how we think about the total ecosystem As I think about revenue growth following quality-of-sales initiatives, we absolutely believe that after we get through our rightsizing and quality-of-sales initiatives, quality of sales is going to be an ongoing scene I think it will be about balance and - but following the reset that we would get back to growth and obviously As <UNK> said, in June, we're going to come back and play out the initiatives in more detail and give you a better road map for the timing of our financial metrics and our come back to growth Next question please Yeah, <UNK>, I can't say enough about how important the resetting of the base and the elevation of the brand has been in building our confidence for China in the future As you can see in our segment reporting, just three years ago, we were not profitable in the Asia region and specifically, in China And the team has done tremendous work as you've seen notably in this quarter in Asia to really expand operating margin So that now, China and Asia growth is accretive over all Ralph Lauren growth And so from a profitability standpoint and a healthy base standpoint, we're on solid footing The brand is in great shape We've cleaned up our distribution, which is an effort that we're continuing, and we are opening doors in a way that makes sense We've got flagships that build the brand We've got Polo doors that are smaller footprint that have excellent four-wall profitability that we're building out And as you can see, we're building out a system of concessions that get us reach with our Chinese consumers and also provide a very healthy ROI The gross margin in Asia is the highest that we have in the company And so building and scaling in the Asia market is an opportunity to continue to expand operating margin, but to really be a significant factor of growth for us The time is certainly right, and we have the right team and we are in the right position to do so now Next question please Next question please Thank you, <UNK> <UNK>, I do think that the inventory discipline in the - and the buying process discipline that we put in place will enable us to differentiate product assortments, but also maintain of the SKU efficiency and inventory efficiencies that we've been able to drive over the last year Thank you So, <UNK>, as we look at gross margin in the second quarter, we feel that we'll have gross margin expansion in the second half of at least 150 basis points So as we move forward and we're seeing our gross margin trends, we've been confident in moving up that guidance on gross margin What you'll see in the second half in terms of SG&A is a real shift in the fourth quarter where we are going to be investing in new stores, but most notably, marketing Jonathan Bottomley, our new Head of Marketing, has been on board And we have a Polo campaign coming out and some real amplification in marketing In fact, if you look at our marketing spend, as you can see in the Q, that's been down in the first half, and it's going to be up significantly in the second half, around double-digit in the third quarter, but up significantly in the fourth quarter As we really believe marketing and telling our story is a great opportunity for us and a great opportunity to really get back to telling our story to position us for growth Next question, please Thank you Of course So on the expense side, and as we think about investments by market, obviously, with our growth focus in Asia, that market will need more marketing The marketing we've put is very effective, as <UNK> noted Our top-of-mind awareness in China is very high and really is another thing that gives us confidence for growth So you'll see marketing go up in China Also, as we called out in our store profile, most of the new doors that are being opened are being opened in Asia, and most of the concessions that we're opening this year will be opened in Asia So capital will be shifting to the China market as we build out You'll also see capital going into Europe as we realize the opportunity for some greater store penetration in Europe, as well as some marketing In North America, what the focus in capital will be is more refurbishment, how do we refresh our store environment We're fully, although there'll be some close store here opened ones there, but it really our opportunity is to show up really well in North America and give some of our stores the love that they deserve in terms of refurbishment You'll see marketing also in the U.S I think we have to get back to telling our story in the U. S Notably, on our digital site, as we - now that the - we're switched on our platform, you're going to see, especially in the third - later third and fourth quarter, more digital assets show up in marketing on our digital sites, but also telling our story in the market but in a much more digitally savvy social media way Trend continues in this quarter was up nicely, so it's encouraging Next question, please So we're comfortable with our guidance in terms of our total wholesale outlook, and specifically for North America, as we said We expect that we'll see wholesale end the year in about the same range that you saw in Q2, so we're down about 22% Q2. I expect the full year will look about similar as our cleanup continues through the third and fourth quarter We are encouraged by what we see as progress on execution Our underlying comp rate, as we view it, is in the mid to high single digits, and we know what we have product and marketing that we need to focus on as well as the store refreshments to change that trend as we move into FY 2019. So about similar to the year to what you saw in this quarter, but I think that the pretty stable underlying comp trend that we are looking to address as we look at all the vectors product marketing and stores

2017_RL

2017

GM

GM #Thanks, <UNK>, and good morning everybody Thanks for joining us GM delivered a very strong quarter that set several Q1 records, including net revenue, EBIT-adjusted, EBIT-adjusted margin, and EPS diluted-adjusted Year-over-year results include net revenue of $41.2 billion, up from $37.3 billion; net income of $2.6 billion, up 34% from $2 billion; EBIT-adjusted of $3.4 billion, up from $2.7 billion; EBIT-adjusted margin of 8.2%, up from 7.1%; EPS diluted-adjusted of $1.70, up from $1.26; and EBIT-adjusted of $3.4 billion in North America and an EBIT-adjusted margin of 11.7%, both of those are Q1 records Automotive-adjusted free cash flow of negative $600 million is an increase of $800 million And our ROIC-adjusted was 29.7% on a trailing four-quarter basis, reflecting the positive impact of our disciplined capital allocation framework And we returned about $600 million in dividends to shareholders in the quarter Our strong core business continues to drive our earnings growth The strategic investments we have made in brands and in our operations are delivering outstanding new products with higher quality, stronger ATPs and positive third-party recognition, and they were produced with much greater efficiency In addition, we continue to generate outstanding EPS performance by focusing on key markets with leading franchises, relentlessly pursuing efficiencies across the enterprise and allocating capital to maximize returns and mitigate risk This means taking action in difficult markets to either restructure or exit the business As you know, last month, we announced the sale of our Opel and Vauxhall brands and GM Financial's European operations to PSA Group for about $2.2 billion This transaction is a win for the stakeholders of General Motors, Opel/Vauxhall, and PSA Group because it will enable each company to capitalize on its respective strategic priority For GM, the sale is another step in our ongoing work to transform the company by strengthening our core business, investing resources in higher return opportunities including the future of personal mobility, and returning significant capital to our shareholders We expect the transaction to close later this year and immediately improve our EBIT-adjusted and EBIT-adjusted margins, and adjusted automotive free cash flow as well as de-risk our balance sheet We can lower the capital balance requirement under our capital allocation framework by about $2 billion and use it to accelerate share repurchases, subject to market conditions The sale will also allow GM to participate in the future success of PSA through warrants to purchase PSA shares and to collaborate with PSA in future technology development and deployment Through these actions, we are establishing GM as a more focused company and aligning our business for strong, sustained performance and growth If I turn and look at GMNA and GM China, they really drove our Q1 results So, let's take a look , we have been introducing new and refreshed crossovers across our brands and we posted our best Q1 retail sales since 2008. Retail market share was up 0.3 percentage points to an estimated 16.9% Chevrolet had its best first quarter since 2007 with year-over-year sales up nearly 2% Buick and GMC retail sales, each were up nearly 4% with their best first quarter in 13 years GMC sold its millionth top-of-the-line Denali model, which has contributed significantly to the brand's strong ATPs Buick, once again, made Consumer Reports' list of top recommended brands Crossover sales rose a combined 21% and truck deliveries were up 0.5% Average transaction prices were over $34,000 and were in line with last year, and exceeded the industry by about $3,000. Now let's turn to China I was just there last week for the Shanghai Auto Show and we actually had our GM board meeting there as well We were there and participated in the launch of new models for the Buick and Baojun brands In the quarter, GM China maintained strong equity income and margins, despite pricing pressures and a 5% sales decline in the quarter, partially due to an increased purchase tax Record March retail sales by GM and its joint ventures were up 16% year over year and helped temper the slow start to the year GM China launched four models in the quarter, the Chevrolet Cruze hatchback, the Chevrolet Camaro, the Baojun 510 SUV, and a new variant of the Buick GL8 MPV Baojun and Cadillac achieved Q1 records, with deliveries up 25% and 90% year over year respectively Half of the 18 new and refreshed models that we introduce in China this year will be in the higher margin SUV, MPV, and luxury segments GM continues to expand its electrification portfolio in China with plans to introduce more than 10 new energy vehicles between 2016 and 2020, including hybrid electric vehicles, plug-in hybrid electric vehicles, and battery electric vehicles GM in China launched the Cadillac CT6 PHEV late last year and last week launched the Buick Velite 5 extended-range EV In addition, Buick will introduce, at least, one all-new locally produced battery electric vehicle model before the end of the decade In South America, we expect significant year-over-year improvement in 2017, despite initial industry weakness Chevrolet continued its 16 years of leadership in the region with sales growth of nearly 11%, outpacing the industry and market share of 15.7% Losses were unchanged year over year and we remain confident that we are well positioned for growth when the market fully recovers In Brazil, Chevrolet has maintained its market share lead for 18 consecutive months In our ongoing work to lead in the future of personal mobility, we are making progress in autonomous vehicles, electrification, and connectivity We just announced we will invest $14 million in a new research and development facility in San Francisco, where Cruise Automation will expand development of self-driving vehicle technologies Cruise will hire more than 1,100 employees during the next five years and link them with our global engineering talent across the globe We are running our autonomous vehicle program like a startup to give us the speed that we need to stay focused at the forefront of these technologies and the market applications As autonomous car technology matures, our talent needs will increase, and Cruise's presence in the Bay Area gives us access to a world-class talent pool These are men and women who want to be part of a fast-moving technology company that can also manufacture autonomous vehicles in scale This month we announced Super Cruise This is the industry's first true hands-free highway driving technology It will be available later this year on the 2018 Cadillac CT6 sedan Super Cruise is the first assisted driving technology that will use precision LiDAR map data in addition to real-time cameras, sensors, and GPS When engaged, Super Cruise accelerates, brakes, steers, and keeps the car centered in the lane, even in stop-and-go traffic And a camera-based driver attention system exclusive to Cadillac ensures drivers keep their eyes on the road Super Cruise is a very promising technology that lays the groundwork for a safer future On electrification, we are maintaining our industry lead in reducing battery cell costs, key to bringing affordable electric vehicles like the Chevrolet Bolt EV to market We are ahead of the impressive battery cell projection cost we established two years ago, and our internal focus is to make GM the first maker of profitable, highly desirable, range-leading, and obtainable electric transportation Advancing our lead in vehicle connectivity, in March we became the first mass-market automaker to offer an unlimited data plan Since then, we have sold more than 100,000 unlimited data plans across our four U.S GM has more than 5 million OnStar 4G LTE-connected vehicles on the road today, more than any other automaker Now if we look at the calendar year 2017, given the used car pricing, a softer than expected industry in South America, a more challenging pricing environment in the U.S and China, and more pressure on commodity costs, there is absolutely no question the global environment is feeling tougher Having said that, this management team is focused on taking the actions necessary to deliver the commitments we made in January, including EPS diluted adjusted of $6.00 to $6.50, and EBIT-adjusted margins greater than or equal to 2016. Our pipeline and mix of new products are strong , 10 all-new or recently redesigned crossovers are expected to drive sales and market share higher this year At the same time, we continue to adjust passenger car output to meet consumer demand We'll realize full-year sales of popular crossovers like the Cadillac XT5, the GMC Acadia, the Chevrolet Bolt EV, the Buick Envision, and a refreshed Buick Encore launched in 2016. They'll be joined this year by the next-gen Chevrolet Equinox and Traverse and the GMC Terrain, Buick Enclave, and the all-new Regal Tour X crossover wagon Our intense focus on cost efficiency continued In January, we increased our savings target to, at least $6.5 billion through 2018, which we expect will more than offset incremental investments in engineering, brand building, and technology And we are always seeking additional opportunities to streamline the business and identify further savings Our solid quarter follows three years of record-setting performance and a track record of taking bold and decisive actions to execute our strategic plan, put the customers at the center of everything we do, and deliver shareholder value And, with that, I'll turn it over to Chuck When you say that business, <UNK>, are you referring to passenger cars? I wasn't sure of your question First, I would say, if you look at the cars, the Cruze, the Malibu, specifically that we just launched last year, they are on very efficient architectures; architectures that we'll use for multiple generations, not only from a light-weighting efficiency from a performance perspective, but also efficiency from a cost perspective So, that's one opportunity that we're already putting in place – or we've already put in place The brand building that we're doing is very important, also looking at the material cost performance that we continue to drive, and then really looking at configuring the vehicle and making sure we have the right vehicle offering to best satisfy and create the value for the customer There's also opportunities with OnStar and the performance and what we can drive into the vehicle there So, there's several things that we're looking at and that we continue to work on as we continue to improve the profitability of cars So, we're very focused on doing that and are making good progress Good morning First to talk about autonomous vehicle, we continue to make very strong progress with Cruise Automation We've given the Cruise Automation team with the right resources that we've added, responsibility not only developed from a technology perspective and integrate with the core engineering elements of General Motors, but also the commercialization And so we really are running that as a startup We haven't put specific timing out there, but I think what we've said several times it will be sooner I think than most people think and we're aggressively working on that and you'll hear more from us as the year evolves on that So I'm very pleased with the progress we're making And also, I think one of the key things, there's a lot that is said right now about autonomous vehicle development But when we are doing our development in downtown San Francisco, also in Scottsdale, also now in Detroit, downtown San Francisco is one of the most complex environments, and the progress that we're making with zero incidents as we take many routes around that city I think gives me confidence that we're on a very good path As it relates to electrification, when I look at all the assets that we bring to electrification, and this is why Mark has challenged the team, that we are the first OEM that is profitable in electric vehicles again from a technology, from a performance, and from an affordability perspective And I think we have a steady ramp of products that you're going to see over the next couple years in electrification, but as we continue to evolve our BEV architecture, I think that will be the step We are ahead of the curve on our cell costs We started at – just a couple years ago we were at $145. We're now below our curve as we get to our goal of being under $100. And so that is progressing very well The experience that we're seeing with the Chevrolet Bolt EV and the great response we're getting, because that is a car that is not only an electric vehicle, but it's fun to drive and it's really a technology platform So when I look at what we've already got into the marketplace with our leadership position in the actual cell technology and the scale that we can leverage across the globe, specifically China, which will be the first and we believe largest electric vehicle market, I think that well positions us So I'm not going to give you specific timing on either, but autonomous sooner than you think And on electrification, that will really as we continue to evolve the BEV architecture From a componentry perspective, to your point, it is a bit simpler to put together It is in one of our very efficient plants, the Lake Orion plant in Michigan And so, when we look at the launch, it's on track, we're currently selling in eight states, California, Oregon, Virginia, <UNK>land, Massachusetts, New York, New Jersey and Washington We'll have some remaining northeastern states that will launch in May and then later in the year available across the United States So, we're right on plan with where we expect the Bolt EV and also important that it will have some global launches as well So, again it's in one of our most efficient plants It's been engineered to be very efficient to build, so we're right on track and we're pleased with the progress on the vehicle Absolutely We constantly evaluate that and I think the steps that we took at the beginning of the year with what you see, we're doing in autonomous, are leading in that direction So, we're looking to create the right business model, demonstrate – we're in a little different position with how we come at this and just to get to the core business and some of the – just a different perspective that people have on this company But that's why we are being so aggressive in autonomous, so aggressive in electrification And frankly aggressive with leveraging our 20-year lead with OnStar and having connectively in the car and unlocking the data monetization opportunities as well as just leveraging the data to provide a distinct and better value to the customers, so they buy our vehicles So we continue to evaluate that We want to put a few more I'll say proof points on the board and demonstrate that we are, I believe, best positioned, especially in electrification when you look at our track record, our scale, the leverage that we have across the globe So we're going to continue to push on that And as we evaluate, we'll look at the right time to make sure that we're doing the right thing for our shareholders, of which is having the right availability of capital <UNK>, thanks for your comments, and I am 150% committed to General Motors In my 37-year career, this is an incredibly exciting time because not only do I believe we are putting the best vehicles on the road that we have in my career here, but when I look at the opportunities that we have with autonomous, with electrification, with connectivity, I'm very passionate about it And so I'm 150% dedicated to this company and continuing to demonstrate that General Motors can be the industry leader in transforming transportation and also being very responsive to the environment, and I think we're well positioned to do that So that's where my focus is and will be going forward So you bring up a very good point, one that we're very cognizant of, and so we look at what the landscape is We do have OnStar deployed quite successfully in China right now But we also think there are opportunities that we're exploring of how we work in that whole ecosystem because it is a very different ecosystem, not only because of some of the issues that you've raised and the different companies that really are leading in that market, but also because of where the country is and how they're adopting technology and in some cases skipping whole generations of the way developed markets use the technology in going right to an end game solution So when I was there just last week, we spent quite a bit of time on that topic and developing the plan of how we're going to pursue that, very specific to the Chinese market, that environment, and the potential people we might work with there as we continue to evolve the OnStar platform in that country Yes, SGM has that The way we view data, <UNK>, is that the customer owns it And so if someone signs up for this service, they give us permission to how we're going to use that data So again, complying with all the laws and regulations in each of the countries, that's the way we use it But through our joint venture, SGM, we do have access to that data, as we set it up with permission from the customer Thank you Right now when we talk about it, we have a cell cost per kilowatt hour that's around $145 and that's for the Bolt EV and we're working that – what we showed a couple of years ago, we're working on a path to get that, like I said, around $100 or below $100 and we're ahead of the curve on that You have to look at the whole vehicle, how it comes together, the scale, the different offerings, is it in sharing environment So, when we drive to that profitability, I can't just say we got to get it to act because you've got to really look at, there's many other levers that get us to be profitable in electric vehicle Now, we're going to keep working aggressively on the cell cost and leveraging our scale To drive you the profitability which is I think where you're asking the question, getting below $100, we'll get there and then we'll set another target Thank you And then, <UNK>, on the technical piece of it, we last year spent a considerable time There'd already work being done, but had my personal attention and Mark Reuss on it as well as <UNK> Mott from an IT and we put the resources together much more into one integrated organization to drive, how did we quickly Because now if you think about it, the car used to stop, it's a pain and now the car doesn't stop there because there's so many services or apps that you can use outside of the car to get the speed and the quality and the integrity to make sure we do it right from a safety and a cyber security perspective We pulled that whole organization together, they operate under one person that we brought into the company So, that's the way we're leveraging the engineering and then we do have a new electrical architecture coming in our vehicles that has been under development for a couple of years and will be launched shortly So, we have addressed, I'll say, the core electrical architecture, but I think more importantly, bringing the resources and having the view that the car extends outside of the pain to make sure that we have the systems integrated well and that's the way that we operate today And so, that's how we're addressing, I'll say, the tech piece of it to support the opportunity that we have to be first and fast in really leveraging this new area Thank you, operator I just got a couple of comments I'm really proud of the team and what they've accomplished in this first quarter This again, I think, demonstrates our resolve that we are going to continue to strengthen the core business, generate the best possible return for our owners and then continue to execute with a huge sense of urgency on the transformative technologies that are really going to allow us to have a leadership position and make people's lives safer, simpler, and better as we move forward We are a very disciplined company as we approach this I think, you've seen actions from us, you'll continue to see actions that represent us because myself, the leadership team and every GM employee, we are here to win And that's what we focus on doing every day when we are at work or wherever we are So, thanks again for participating

2017_GM

2016

MRCY

MRCY #You're welcome. We don't break out the bookings and backlog on organic and acquired basis. Couple of reasons for that. One is as I said the lines are blending quickly as we see more and more what I would call combined opportunities to bring the technology package to bare. Second is that as <UNK> said, I think what the important thing was from our perspective is the bookings performance solid and the answer is a resounding yes. We've been extremely pleased both for the two-month period that we owned them last quarter and for the first three months that we owned them in Q1. So they've actually come in line with organic Mercury and that's really what we want to see and that was pretty amply illustrated by the 1.1 book-to-bill for the quarter on a combined basis. Bottom line is we're very happy with the way they've come around. So, as I said previously, <UNK>, when you look at the revised guidance on a pro forma basis assuming that the acquired business did approximately $100 million of revenue in fiscal 2016 meaning we had owned it for the full year, that would translate into a pro forma growth rate of between 5% to 8% year-over-year on a combined basis. We expect both the organic business and the acquired business to grow within those growth ranges. For the acquired business, that would result in increasing growth versus where they were last ---+ the year before we owned them. From a Patriot perspective, we did receive a large order for Patriot during Q1. And we have increased our revenue forecasts for the Patriot program versus where we were last quarter. Paveway is an existing program for them. They received a large booking. We received a large booking during the quarter as well as a long-term supply agreement with Raytheon that we're very pleased about. I'm not going to comment specifically, about the content per program or per missile. But we are providing some innovative technology across several of the programs that I previously discussed. Well, thanks very much, Andrea and thanks everyone for listening. Again we hope to see you at our investor day in New York City on November 8, 2016. That concludes the call. Thank you.

2016_MRCY

2017

EV

EV #I think I got all that, but let me just, let me make sure. So first on NextShares and where that fits in with the pricing on mutual funds, there is an important linkage there that I think as probably most of the people on the call understand, there is a significant change that seems to be happening likely happening in connection with the either current or possibly delayed implementation of the DOL fiduciary rule, which is C shares, clean shares, other types of fund pricing. How NextShares fit into that is that we have, or anyone has with NextShares, the ability to offer those with pricing determined by the individual broker-dealer. It is subject to NextShares or subject to what is called 22D relief which also applies to ETFs. So NextShares will be the only proprietary actively managed strategies offered on the basis where broker-dealer A can have their own pricing schedule, separate from broker-dealer B all operating in the same basic structure. That's---+ and not subject to the somewhat narrow terms of that clean shares relief. So that is very much a part of the conversation with NextShares and I would say some of the delay we have had and frankly frustration we have experienced with the pace of NextShares' uptake has been related to this uncertainty about pricing trends in the industry and where NextShares fits into that. So we think on balance those things helpful. Change is helpful. Uncertainty is not helpful. Because uncertainty interferes with decision-making and we're looking for broker-dealers and fund sponsors to commit to NextShares as an important part of their future product lineup in pricing. In terms of specific conversations with broker-dealers, obviously we cannot comment on that. I would say that we are, we continue to have advanced discussions with all types of major broker dealers. The main act for us currently is UBS, which announced last summer that they intend to offer NextShares and have really followed through on making it clear to the marketplace that this is an important initiative for them and they're hoping to do a broad launch of NextShares through the end of the year or by the end of the year. We now have, as I mentioned, eight NextShares funds in the marketplace and with UBS's support, we certainly expect to have a multiple of that by the end of the year. Yes. I think that our strategy is that we tier our application of our capital as we move through each quarter and it's a series of independent decisions. But our first priority is always to use our cash to actually grow the Company organically. And to the extent that we have opportunities, like we saw with Calvert, we are first one going to deploy our resources in those types of directions and we'll continue to look for those types of opportunities. Second is to maintain our dividend; we feel strongly about our position as a solid dividend company and we want to make sure that we do not do anything that jeopardizes that. And then third, to the extent that we see an opportunity and we feel like we have got cash flow that makes sense for us to be in the market, we're in the market, to the extent that we see an opportunity to lean in, we lean in. If we look at the stock price and we think that we need to think about it a little bit more carefully, we might pull back. So I think that the foremost consideration is always, can we actually deploy our resources to actually grow the Company, and I think that we obviously did that this quarter and are really pleased with what we did with Calvert. It varies by the different businesses and exposure management, the other significant player in that is Russell Investments who has a competitive product offering. There are some other entities primarily coming out of the custody bank world that either have currently or have in the past competed in that marketplace. But it's a relatively small number of competitors. For the larger institutions, we also compete against the potential of doing it in-house, which is an option that at the high-end would certainly be competitive with what we do. Maybe the most significant competitor is that and certainly the other competitor is not doing this, not doing this at all. This is a voluntary thing where we have to sell people on the concept that by managing cash and managing exposures more efficiently and more tightly, they can more than make up for the incremental cost of employing this service, which certainly the longevity of the client relationships that we've had suggest that that's a pretty easy sell for people that know and understand this product. On the custom beta site, competition varies a little bit. We have one group of competitors on the laddered muni side or laddered corporate side, firms like Nuveen are active in that, players in the retail managed account business. In terms of Parametric's custom core strategy, probably the biggest competitor is a firm [base insurance is so] called Aperio, which has a competitive offering. But there's, we think a unique advantage that accrues to us is having this comprehensive capability that goes across equity and income. And also with the addition of Calvert now into Eaton Vance, gives us the ability to do things in terms of responsibly managed, separately managed accounts and associated customization and impact activity that we can do and impact reporting that we can do that really sets us apart from everyone else that's active in this marketplace. But the key for us in growing that business has been, first, broadening distribution to encompass a broader range of strategies offered through more intermediaries. And second, really filling out the product line and the enhancing the service offering over time. All of these things required a pretty significant investment in technology and infrastructure to accommodate what are literally tens of thousands a separate accounts that we manage in this business. Thank you. I do not have an estimate. The vast majority of that would be custom beta. That is really the growth driver of our high net worth business at the moment. And that would be, just as a reminder, Parametric has a separate sales force for the high net worth channel that calls on family offices, multifamily offices, and high-end registered investment advisors. And that's the primary driver for that business. Eaton Vance also has what we call an investment counsel business that's experiencing modest growth currently, but the primary grower within the high net worth category is through the Parametric wealth management channel and specifically the custom beta products. Yes. Between the tax management and nontax managed version of custom core, you have got close to $3 billion of net inflows in this quarter. So that was coming up through the high net worth channel. I think it ---+ a lot to be seen in the details of those proposals. If the only change is a lowering of tax rates, I think that would not make a lot of difference in this business. Obviously if tax rates get cut in half, that's one thing, but if the top tax rates goes from 39.6% to, I believe the proposal is 33%, maybe that would have a marginal impact. But I do not think it is a huge impact on our business. If there are other changes of a structural nature, that potentially could have a bigger impact. So we're watching carefully to see what happens with text reform. Like a manifold effect on our ---+ like many, like probably most corporations a large and varied effect on our business, there is an overly positive that would come from a lowering of corporate tax rates just because Eaton Vance pays such a high tax rate currently. But in terms of impact on our business, I know the asset management industry is concerned about the possibility of things like changing the tax treatment of municipal bonds, changing ---+ changes in the incentives for retirement of employer-sponsored retirement plans. All those things to be potential negatives that we are going to have to see how they play out. But there's nothing out there specifically that concerns us related to our custom beta business, but we are monitoring it closely.

2017_EV

2015

CENX

CENX #That's a good question, thanks. Those are all proceeding exactly ---+ I guess two parts. Those actions that we had implemented at that time and described to you in the July call with an important addition, I will get to that in a sec, are proceeding exactly as we had expected. Of course, the major change here is we've taken Hawesville down to a lower production level and so that changes the basis of that whole presentation, if you will, or calculation. But all of those actions about which ---+ those were all implemented and those are either done or in execution phase. So there's been no change there other than, as I said, the change on the configuration of Hawesville. <UNK> gave you the EBIT or the EBITDA breakeven. In terms of accounting profit and loss, adding in depreciation, is that what ---+ what specifically are you asking and then we'll try and answer it best we can. We haven't put that out, John. I think you can work back from EBITDA by ---+ you know the cost below the EBITDA line, just to go over them for everybody, I guess <UNK> or <UNK> will tell me if I get this wrong. We obviously have interest expense of about $20 million on an annual basis. Depreciation is about $70 million annualized ---+ thanks, <UNK> ---+ $70 million annualized. Taxes are an estimate at these LME levels. You are not paying very many taxes. <UNK>, go ahead. Essentially zero in the US and at around breakeven levels, it's not going to be much in Iceland either. So assume zero for taxes. And in <UNK>'s number, that cash covered interest. Really depreciation is going to be the big (multiple speakers) that's not in <UNK>'s number. No, thanks, <UNK>, that's a good question. Now that you asked, we'll just ---+ maintenance CapEx, as we've said before and we've obviously confirmed this in discussions with all the plants recently as you would hope and expect, are relatively low at these plants, especially at Grundartangi, which is our newest plant. And so the answer to your question is no. And I can expand. Maintenance CapEx for 2016, just strictly maintenance if we were to make a decision to stop all discretionary CapEx, you are talking about well under $50 million for the consolidated company. Okay, well, then we do appreciate everybody's time again and we'll look forward to talking with you over the coming months. Take care.

2015_CENX